EU Cars Cheaper in India as Tariffs Drop to 40% in Landmark Trade Pact
The landmark India-EU Free Trade Agreement (FTA), finalized on January 27, 2026, and hailed as the “mother of all deals,” is poised to make European cars significantly more affordable in India by slashing steep import tariffs on automobiles.
For decades, India has imposed some of the world’s highest duties on fully built-up (CBU) imported cars, ranging from 70% to as high as 110% (with additional cesses, GST, and other levies often pushing the effective burden beyond 140-170%). This protectionist regime has kept many premium European models out of reach for most buyers, limiting European brands to under 4% of India’s roughly 4.4 million-unit annual car market, which is dominated by domestic players like Tata Motors, Mahindra, and Japanese brands such as Maruti Suzuki.
Under the new pact, India has agreed to grant the European Union unprecedented tariff concessions on cars—reductions not extended to any other trading partner. Key changes include:
- An immediate sharp cut in import duties on eligible EU-made internal combustion engine (ICE) cars, with initial tariffs dropping to around 30-40% for vehicles priced above approximately €15,000 (roughly ₹16-28 lakh, depending on exchange rates and model specifics).
- Phased further reductions over several years, eventually bringing duties down to as low as 10% in many cases.
- These concessions apply within limited annual quotas—starting at around 100,000 units in the first year and scaling up to approximately 250,000 vehicles per year—to prevent market flooding while allowing gradual access.
- Duties on car parts are set to be phased out or eliminated over 5-10 years, which could lower costs for local assembly and benefit manufacturers with operations in India.
- Electric vehicles (EVs) from the EU are excluded from tariff reductions for the first five years to safeguard India’s burgeoning domestic EV industry and investments by companies like Tata Motors and Mahindra.
The agreement covers 96.6% of traded goods with tariff eliminations or reductions, and it is expected to double EU exports to India by 2032 while saving European companies billions in duties. It comes amid shifting global trade dynamics, including U.S. tariffs on Indian goods, and aims to boost bilateral ties.
The initial reduction to 30-40% on customs duties could lower the overall tax burden (including other levies) to roughly 70-90%, potentially translating into 40-50% price reductions for affected imported models compared to current levels. However, actual ex-showroom prices will depend on manufacturers’ pricing strategies, currency fluctuations (such as rupee-euro movements), and whether full savings are passed on to consumers. Many popular European luxury models from brands like Mercedes-Benz, BMW, and Audi are already assembled locally or via CKD (completely knocked down) kits, which face lower duties (around 16%), so their mainstream offerings may see limited immediate impact.
Fully imported vehicles—especially premium, performance, or niche models not produced in India—are expected to benefit most. Potential candidates include higher-end variants from Volkswagen, Skoda, Porsche (such as the 911, Panamera, or certain ICE Macan/Cayenne models), Audi’s top-tier imports, select Mercedes-Benz and BMW fully built units, and even supercars from brands like Ferrari or Lamborghini.
The deal requires final ratification and legal processes, which may take months to a year, meaning full implementation could begin in late 2026 or 2027. While the changes represent a major opening for India’s protected auto sector, analysts note that European brands will still face stiff competition from established local and Asian players in the mass and mid segments.
Overall, the India-EU FTA marks a strategic win for both sides: easier market access for European automakers amid global challenges, and expanded trade opportunities for India in a multipolar world. For buyers interested in premium European imports, this could be the start of a more accessible luxury car landscape in the coming years.
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