India-EU FTA Shakes Up Auto Market: European Cars Get Massive Duty Slash, But Only For 2.5 Lakh Units A Year

India-EU FTA: India’s long-protected automobile market is set for a significant shift after New Delhi and the European Union concluded their Free Trade Agreement, introducing a sharp reduction in tariffs on EU-manufactured cars. The move, however, comes with a clearly defined ceiling that limits how many vehicles can benefit from the lower duty.

"Tariffs on cars will gradually go down from 110% to 10% with a quota of 250,000 vehicles a year," said a press statement.

A Break From India’s Traditionally High Auto Barriers

For decades, India’s automobile sector has operated behind some of the highest import duties in the world. Imported cars currently attract duties ranging between 70% and 110%, a policy designed to shield domestic manufacturers and encourage local production. These high duties have often drawn criticism from global auto executives who argue that the barriers restrict market access and limit consumer choice.

The FTA changes that equation for European carmakers, but not without limits. Only up to 250,000 vehicles per year will qualify for the reduced 10% tariff, ensuring that the domestic industry does not face a sudden surge of cheaper imports. The phased reduction also suggests that the transition will be gradual rather than abrupt.

Trade Relationship Already Running Into Billions

The tariff cut on automobiles comes against the backdrop of an already strong trade relationship between India and the EU. Bilateral trade between the two sides crossed USD 190 billion in 2024-25, making the EU one of India’s largest trading partners.

India exported USD 75.9 billion in goods and USD 30 billion in services to the EU. In comparison, the EU exported USD 60.7 billion in goods and USD 23 billion in services to India. The agreement on automobile tariffs is therefore part of a broader economic engagement that spans multiple sectors beyond manufacturing.

A Market Too Big to Ignore

India is currently the third-largest car market in the world by sales, behind only the United States and China. Despite its size, the country has remained difficult for foreign automakers to penetrate due to steep duties on fully built imports.

The new arrangement offers European brands a structured pathway into this vast consumer base without dismantling India’s protectionist framework overnight. It also responds to longstanding concerns raised by international business leaders, including Tesla chief Elon Musk, who have publicly questioned India’s import duty structure.

With the FTA now concluded, the Indian car market is poised to see greater European presence, though within carefully managed limits that seek to balance consumer access, trade ties, and domestic industry interests.