Quick Highlights:
- Import duties on European cars to drop to 40% from 70–110% under the India–EU FTA.
- Further tariff reduction roadmap could bring duties down to as low as 10% over time.
- Battery Electric Vehicles (BEVs) excluded from duty cuts for the first 5 years.
- Initial benefit limited to ~200,000 premium cars priced above ₹15.5 lakh.
India Set to Slash Import Duties on European Cars Under Landmark EU Trade Deal
In what could reshape India’s automotive landscape, the government is preparing to significantly reduce import duties on cars from the European Union as part of the long-awaited India–EU Free Trade Agreement (FTA). According to a Reuters report, tariffs on European-built cars will be cut to 40% from the current 70–110%, with a long-term plan to gradually reduce them to as low as 10%.
The deal, described by negotiators as the “mother of all trade agreements”, is expected to be formally announced as early as this week, marking the culmination of negotiations spanning several years with the 27-nation EU bloc.
Scope of the Initial Tariff Cuts
The reduced import duty will initially apply to a limited quota of around 200,000 vehicles per year. These cars must be priced above €15,000 (approximately ₹15.5 lakh), effectively targeting the premium and luxury segments rather than mass-market vehicles.
This cautious rollout signals that India is opening its market in a controlled manner, rather than throwing the doors wide open overnight. From my perspective, this calibrated approach seems designed to balance global integration with domestic stability.
Why Electric Vehicles Are Excluded for 5 Years
One of the most important elements of the agreement is the explicit exclusion of Battery Electric Vehicles (BEVs) from the duty cuts for at least five years. This decision reflects India’s intent to protect and nurture its rapidly developing local EV ecosystem.
Domestic manufacturers such as Tata Motors and Mahindra have invested heavily in EV platforms, batteries, and charging infrastructure. Allowing cheaper imported EVs too early could undercut these efforts and discourage further investments.
The trade agreement, sources note, is meant to promote international development without compromising domestic growth—and EV protection is central to that philosophy.
What About Hybrids and Plug-in Hybrids?
While BEVs are excluded initially, other electrified powertrains will be treated differently:
- PHEVs (Plug-in Hybrid Electric Vehicles) are likely to follow a similar tariff-reduction path as BEVs after the five-year protection period.
- Mild hybrids (MHEVs) and full hybrids (HEVs) fall under the internal combustion engine (ICE) category and are expected to benefit from the initial duty reductions.
This distinction could make European hybrid vehicles more competitive in India much sooner than fully electric models.
India’s Highly Protected Auto Market at a Turning Point
India is currently the third-largest car market globally, with annual sales exceeding 4.4 million units. Yet it remains one of the most protected automotive markets in the world, with some of the highest import duties on fully built cars.
These policies have long drawn criticism from global auto executives, including Tesla CEO Elon Musk, who has repeatedly flagged India’s steep tariffs as a barrier to entry.
However, with the market projected to grow to 6 million units by 2030, the government appears ready for a measured liberalization, ensuring local players are not exposed to sudden, disruptive competition.
Strategic Trade-Offs Beyond Automobiles
For India, lowering car import tariffs is not just about automobiles. It is a strategic concession aimed at unlocking broader trade benefits from the EU. The FTA is expected to improve access for Indian exports such as textiles, jewellery, and labour-intensive goods, sectors that have faced higher tariffs in other global markets.
In my view, this makes the deal less about cars alone and more about India positioning itself as a stronger, more competitive player in global trade.
Frequently Asked Questions — FAQs
Q. What will be the new import duty on European cars in India?
- Import duties will be reduced to 40% initially, down from the current 70–110%, with a roadmap to bring them as low as 10% over time.
Q. Are electric vehicles included in the duty cuts?
- No. Battery Electric Vehicles (BEVs) are excluded for the first five years to protect domestic EV manufacturers.
Q. How many cars will qualify for the reduced tariff initially?
- The benefit will apply to around 200,000 cars annually, all priced above ₹15.5 lakh.
Q. Will hybrid cars get duty reductions?
- Yes. Mild hybrids (MHEVs) and full hybrids (HEVs) are expected to be included, while PHEVs may see reductions later.
Q. Why is India protecting its EV market?
- India wants to safeguard investments by local players like Tata Motors and Mahindra and avoid slowing the growth of the domestic EV ecosystem.
Q. When will the India–EU FTA be announced?
- The agreement is expected to be formally announced as early as this week, according to sources familiar with the negotiations.
