India and EU Near Trade Deal with Car Tariff Cuts
India and the European Union are in advanced stages of trade negotiations, with a potential agreement that includes significant tariff reductions on European cars. The deal, which could be announced as early as January 27, 2026, aims to reshape trade, investment, and supply chains between the two regions.
Proposed Tariff Reductions on European Cars
As part of the proposed Free Trade Agreement (FTA), India is considering a major cut in import duties on European cars. Currently, tariffs on many high-end car models can reach as high as 110%. The proposed deal would immediately reduce these duties to 40% for a limited number of cars. Over time, tariffs for premium vehicles could decrease further, potentially reaching 10%.
The reduced tariffs would apply to EU-made cars priced above €15,000 (Rs 16.28 lakh). The tariff reductions would initially apply to internal combustion engine (ICE) vehicles, with electric vehicles (EVs) excluded for the first five years after the FTA is finalized and ratified. This exclusion aims to protect domestic EV manufacturers.
Potential Impact and Benefits
The tariff reductions are expected to benefit European automakers such as Volkswagen, Mercedes-Benz, and BMW, allowing them to price their premium models more competitively in the Indian market. Models from Lamborghini, Ferrari, Maserati and Volvo could also see a reduction in prices.
The India-EU FTA consists of 24 chapters, covering trade in goods and services. India's bilateral trade in goods with the EU was $136.53 billion in 2024-25, with $75.85 billion in exports and $60.68 billion in imports, making the EU India's largest goods trading partner. The services trade in 2024 was $83.10 billion.
India-EU Trade Relations
The EU is India's largest trading partner, accounting for €124 billion worth of trade in goods in 2023, which is 12.2% of India's total trade. India is the EU's 9th largest trading partner, accounting for 2.2% of the EU's total trade in goods in 2023. Trade in services between the EU and India reached €59.7 billion in 2023.
Conclusion
India and the EU are nearing a trade agreement that would significantly reduce tariffs on European cars, potentially reshaping the Indian auto market. The proposed FTA aims to remove trade barriers, increase trade volumes, and promote economic cooperation between the two regions.
