India is on the verge of its most far-reaching opening of the automobile sector, preparing to slash import tariffs on cars from the European Union as negotiations for a long-awaited free trade agreement reach their final stage.
The move would mark a turning point for a market that has remained heavily protected for decades, even as India positions itself as a central player in global manufacturing and supply chains.
According to two sources briefed on the talks, who spoke to Reuters, New Delhi has agreed to immediately reduce import duties on a limited number of cars from the 27-nation EU bloc to 40%, down from rates that currently range between 70% and 110%. The reduced tariff would initially apply to vehicles with an import price above 15,000 euros ($17,739) and would be lowered further to 10% over time. An announcement on the broader trade pact could come as early as Tuesday, with officials informally referring to the agreement as the “mother of all deals.”
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The sources requested anonymity because the discussions are confidential and subject to last-minute changes. India’s commerce ministry and the European Commission declined to comment.
The tariff cuts go well beyond automobiles for India. Officials see the EU pact as a way to rebalance trade at a time when Indian exporters are facing pressure in other markets. Shipments of goods such as textiles and jewelry have been hit by 50% U.S. tariffs introduced in late August, sharpening the urgency for New Delhi to deepen access to Europe, one of its largest trading partners.
Still, the auto provisions stand out because of how closely the sector has been guarded. India is the world’s third-largest car market after the United States and China, with annual sales of around 4.4 million vehicles. Yet imported cars have long been treated as luxury goods, burdened with some of the highest tariffs in the world. The policy has helped domestic manufacturers and kept foreign brands’ market share low, but it has also limited consumer choice and slowed the entry of newer technologies.
Under the current proposal, India would allow roughly 200,000 combustion-engine cars a year to be imported at the sharply reduced 40% duty, one of the sources said. The quota could still be revised before final approval, but even in its present form, it would represent the boldest opening of the sector India has ever contemplated.
Electric vehicles are being handled more cautiously. Import duty reductions for battery electric cars will be excluded for the first five years, according to the sources, as the government seeks to protect investments by domestic manufacturers such as Tata Motors and Mahindra & Mahindra in a sector that is still developing. After that initial period, EVs would follow a similar tariff reduction path, aligning with India’s longer-term electrification goals.
European automakers are poised to gain significantly if the plan goes ahead. Volkswagen, Renault, and Stellantis, along with premium brands Mercedes-Benz and BMW, already assemble vehicles in India but have struggled to expand their footprint beyond a niche presence. High import duties have made it expensive to bring in fully built units, limiting their ability to test demand for new models or respond quickly to shifts in consumer preferences.
Lower tariffs would allow these companies to introduce a wider portfolio of vehicles at more competitive prices, one of the sources said, and use imports as a bridge before committing fresh capital to local manufacturing. That flexibility matters in a market where scale is essential, but margins remain tight.
At present, European brands account for less than 4% of India’s passenger car sales. The market is dominated by Suzuki Motor through its long-standing partnership with Maruti, alongside homegrown players Tata Motors and Mahindra, which together command about two-thirds of total volumes. Any meaningful shift in tariff policy has the potential to reshape that balance over time, even if domestic manufacturers remain firmly entrenched.
The timing also aligns with longer-term growth expectations. India’s car market is projected to expand to around 6 million units a year by 2030, making it one of the few major markets still offering sustained volume growth. European manufacturers are already adjusting their strategies accordingly.
Renault is rebuilding its India operations as it looks for growth outside Europe, where competition from Chinese carmakers has intensified. Volkswagen Group, meanwhile, is finalizing the next phase of investment in India through its Skoda brand, betting on deeper localization and exports.
For Prime Minister Narendra Modi’s government, the proposed tariff cuts underline a more pragmatic trade posture. While India continues to champion domestic manufacturing through initiatives such as “Make in India,” the EU deal signals a willingness to trade selective market access for broader economic gains, including export growth, technology transfer, and stronger integration with advanced economies.
If finalized, the agreement would place automobiles at the center of a wider reset in India–EU economic relations, opening a sector long considered politically sensitive and setting a precedent for how India balances protection of domestic industry with its ambitions to play a larger role in global trade.