India to cut EU car import tariffs from 110% to 40% in draft trade pact
India is preparing to sharply cut import tariffs on cars from the European Union, in what sources describe as its most significant move yet to open up the sector as New Delhi and Brussels near a long-awaited free trade agreement.
Two people familiar with the negotiations said the Modi government has agreed to immediately lower duties on a limited number of EU-built cars priced above €15,000 to 40%, down from current rates that can reach 110%.
The tariff on those vehicles would then be reduced further over time to 10%, improving access for European brands such as Volkswagen, Mercedes-Benz and BMW.
The sources asked not to be named because the discussions are confidential and could still change at the last minute.
India’s commerce ministry and the European Commission declined to comment.
India and the EU are expected to announce as early as Tuesday that they have wrapped up years of negotiations on the free trade pact.
After that, both sides would move to finalise technical details and complete ratification of what has been billed as “the mother of all deals”.
A deal would be expected to widen bilateral trade and support Indian exports, including textiles and jewellery, which have faced 50% US tariffs since late August.
Although India is the world’s third-largest car market by sales after the United States and China, its auto sector remains among the most protected.
New Delhi currently applies import duties of about 70% to 110% on cars, a level frequently criticised by executives, including Tesla chief Elon Musk.
One of the sources said India has proposed an immediate cut to 40% for a quota of around 200,000 combustion-engine cars a year, its most aggressive offer so far, though the quota could still be revised.
Battery electric vehicles would be excluded from any duty reductions for the first five years, the sources said, to protect investments by domestic manufacturers, including Mahindra & Mahindra and Tata Motors, as the EV market develops.
After that period, EVs would move onto a similar tariff-cut pathway.
Lower import taxes would benefit European manufacturers such as Volkswagen, Renault and Stellantis, along with luxury brands Mercedes-Benz and BMW.
Many already build vehicles locally in India, but have found it difficult to expand beyond a certain point, in part because high tariffs make importing a wider range of models expensive.
Reduced duties would allow companies to offer imported vehicles at more competitive prices and test demand with broader line-ups before committing further to local production, one of the sources said.
European carmakers currently account for less than 4% of India’s roughly 4.4 million-unit annual market, which is dominated by Japan’s Suzuki Motor and domestic brands Mahindra and Tata, which together control about two-thirds.
With demand projected to rise to around 6 million units a year by 2030, companies are already positioning for growth: Renault is reshaping its strategy in India, while Volkswagen Group is working on its next investment phase through Skoda.
Reuters
