The Tamesis
India is considering slashing import duties on European cars as it gets closer to signing a trade deal with the European Union, Reuters reported, citing sources familiar with the negotiations.
An EU trade delegation, including European Commission President Ursula von der Leyen, is currently in India negotiating a deal that has been more than a decade in the making and could culminate in a free trade agreement As early as Tuesday.
Automobiles and steel have been key sticking points in trade talks so far. The EU wants India to cut huge import duties on EU cars, while India is worried that its steel exports to the EU will be restricted by EU tariffs. carbon border tax and safeguard measures to reduce total EU steel imports.
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India’s decision to lower import tariffs, which are currently as high as 110%, could bring the two sides closer to a deal known as the “mother of all deals.”
Prime Minister Narendra Modi’s government has agreed to immediately lower taxes on a limited number of imported cars from the 27-nation bloc that cost more than 15,000 euros ($17,739), two sources with knowledge of the negotiations told Reuters.
This will be further reduced to 10 per cent over time, allowing European carmakers such as Volkswagen, Mercedes-Benz and BMW to enter the Indian market, they added.
India is the world’s third-largest auto market by sales after the United States and China, but its domestic auto industry has been one of the most protected. New Delhi currently imposes tariffs of 70% and 110% on imported cars, levels frequently criticized by executives including Tesla CEO Elon Musk.
New Delhi has proposed immediately cutting import duties to 40% on about 200,000 internal combustion engine vehicles a year, a source said, in the most aggressive move yet to liberalize the industry. The quota could change at the last minute, the source added.
Two sources said pure electric vehicles will be excluded from import duty relief for the first five years to protect investments by domestic players such as Mahindra & Mahindra and Tata Motors in the emerging sector. Five years later, electric cars will enjoy similar tariff breaks.
Local automakers lead the way
Lower import duties will boost European automakers such as Volkswagen, Renault and Stellantis, as well as luxury carmakers Mercedes-Benz and BMW, which make cars locally in India but have struggled to grow due to high tariffs.
One of the two sources said the lower tax would allow automakers to sell imported cars more cheaply and test the market with a wider product portfolio before committing to producing more cars locally.
European automakers currently account for less than 4% of India’s 4.4 million-unit annual car market, which is dominated by Japan’s Suzuki Motor and two-thirds of local brands Mahindra and Tata Motors combined.
The Indian market is expected to grow to 6 million units per year by 2030, and some companies are already lining up new investments.
Renault is making a comeback in India with a new strategy as it seeks growth outside Europe, Chinese automakers are making strong inroads outside Europe and Volkswagen Group is finalizing its next investment in India through its Skoda brand.
“The mother of all transactions”
If agreed, the deal would open India’s vast and tightly protected consumer market of more than 1.4 billion people to European goods and could reshape global trade flows as protectionism rises.
The deal could also expand bilateral trade and boost Indian exports of goods such as textiles and jewelry, which have been hit by 50% U.S. tariffs since late August.
The agreement is seen as an opportunity for both sides to deepen economic ties and reduce dependence on China and Russia. Total bilateral trade between India and the EU will reach 120 billion euros ($140 billion) in 2024, making the EU India’s largest trading partner.
India also negotiates US trade deal collapsed last year after a breakdown in communication between the two governments. Both sides said talks were continuing but no agreement had been reached.
An Indian trade ministry official said last week that some sensitive agricultural products had been excluded from the negotiations.
India will not open up its agriculture or dairy sectors in any trade deal, officials have said, citing the need to protect millions of subsistence farmers.
The EU is pushing for deep tariff cuts on cars, medical devices, wine, spirits and meat, as well as toughening intellectual property rules. India is seeking duty-free access for labor-intensive goods and speeding up recognition for its automotive and electronics industries.
In addition to goods, the agreement is expected to expand investment and cooperation in services trade, digital trade, intellectual property and green technology, and stimulate European investment in Indian manufacturing, renewable energy and infrastructure.
The deal will be India’s ninth trade deal in four years and reflects New Delhi’s efforts to secure market access amid growing protectionist tendencies around the world. For the EU, the deal supports diversification of supply chains and reduces reliance on China while leveraging India’s fast-growing $4.2 trillion economy.
key figures
The EU, along with the United States and China, is one of India’s largest trading partners, with total bilateral trade in goods and services exceeding $190 billion in 2024/25. India exports about $76 billion in goods and $30 billion in services to the 27-nation bloc.
Average EU tariffs on Indian goods are relatively low at about 3.8%, but labor-intensive industries such as textiles and clothing face tariffs of about 10%, according to the Global Trade Research Initiative, a Delhi-based think tank.
Since the EU begins to withdraw tariff reductions under the Generalized System of Preferences (GSP) for products such as clothing, medicines and machinery in 2023, the free trade agreement will help restore lost competitiveness and offset the impact of higher US tariffs.
Meanwhile, EU exports to India face higher barriers, with weighted average tariffs of about 9.3% on $60.7 billion worth of goods in 2024/25.
- Reuters, with additional editing and input by Vishakha Saxena
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