E.U. edges out U.S. as New Delhi readies to slash duties on imported cars
This report is excerpted from CNBC’s ‘Inside India’ newsletter this week, which brings you up-to-date, informative news and market commentary on the emerging powerhouse. Subscriber Here.
New Delhi-based tech startup founder Ashita Gupta loves her cars. Gupta, who drives an Audi A6 in anticipation of luxury European cars becoming cheaper, is considering buying another high-end vehicle.
He says it “doesn’t make sense” to spend so much money on a second car, but if an Audi R8 or Audi RS4 were “affordable” it would be worth buying.
India and the European Union on Tuesday announced the “mother of all deals”, which involves New Delhi gradually reducing import duty on European cars to 10% from 70-110% currently. This will apply to a quota of 250,000 vehicles per year and vehicles priced above 15,000 euros ($17,952).
Indian Prime Minister Narendra Modi (C) poses for a photo with European Commission President Ursula von der Leyen (R) and European Council President Antonio Costa on January 27, 2026 in New Delhi, India.
Seccad Hüseyin | Afp | Getty Images
India has long protected the world’s third-largest auto market by imposing prohibitive tariffs on imports to protect domestic auto companies while forcing global firms to set up local production facilities.
In fact, US President Donald Trump has frequently criticized India for protecting its domestic auto industry from imports, demanding lower tariffs on American auto companies, calling them “so unfair”
Now Brussels has outmaneuvered Washington in getting New Delhi to abandon its tough stance on auto tariffs, securing a lucrative deal for European auto companies.
“EU brands now have a premium pass into the world’s third-largest auto market, while US companies now face a massive tax,” Omdia auto analyst Diwaker Murugan told CNBC. Omdia estimates that the Indian automobile market will reach 6 million by 2030, driven by the young population with higher disposable income.
Brilliant deal, poor prospects?
Nearly 95% of cars sold in fiscal 2025 were priced below 2 million rupees ($21,756), according to data from Crisil, an Indian research and rating agency owned by S&P Global.
However, according to auto experts, despite the reduction in customs duties, the price of imported European cars will exceed this range with local taxes being added to the final price. So the total addressable market for European car companies will still be limited.
India’s mass car market is dominated by Maruti Suzuki and Hyundai, which have been producing in India for over two decades, and local players Tata and Mahindra, whose high-volume models fall below Rs 2.5 million.
The Association of European Automobile Manufacturers said in a statement that the India-EU deal “will greatly help European auto exports penetrate a market of 4 million passenger cars that have been hitherto protected by exorbitantly high import tariffs,” pointing to limitations such as “quota limitations and residual tariffs that will limit the potential benefit to some extent.”
Europe’s five biggest luxury brands Mercedes-Benz, BMW, JLR, Audi and volvoAccording to data from Indian research and rating agency Crisil, owned by S&P Global, 49,000 cars were sold in India in the fiscal year ending March 2025; Of this figure, total passenger car sales were 4.3 million.
Puneet Gupta, director of technical research at S&P Global Mobility, said European car companies dominate the luxury segment, but their position overall is “increasingly under pressure” due to declining market share.
He explains that Indian and Korean manufacturers have “aggressively increased their presence through capacity expansion, frequent product launches and rapid network growth”, while Europeans have been relatively cautious about investments over the past few years.
The free trade agreement, likely to come into effect later this year, could prompt European companies to reassess their India business plans as trade barriers ease, Gupta said.
Hardeep Singh Brar, chairman and CEO of BMW Group India, echoes this sentiment.
FTA can create opportunities to introduce new and niche products and support deeper localization over time if demand increases,” Brar told CNBC in an email exchange. The Indian arm of German automaker BMW Group produces more than 95% of its cars locally and yet sold just over 18,000 units in 2025 — that’s it. highest so far.
local concerns
This FTA potential, coupled with changing consumer preferences, has caused some concerns among Indian auto investors; because the move to reduce tariffs dramatically confronts market leaders with increased competition in high-margin segments.
“The real battleground is the Premium SUV segment priced above Rs 2.3 lakh,” said Omdia’s Murugan. “The agreement, which allows European brands to launch vehicles in this range at competitive prices, could create a clash between European badge value and India’s flagship SUVs,” he added.
Some top-end variants of locally produced cars like Mahindra’ Scorpio or Tata Safari are priced close to Rs 2.5 lakh and are popular among customers.
Shares of India’s leading auto companies fell after the deal was announced on Tuesday. Mahindra and Mahindra, Hyundai Motor India, Maruti Suzuki And Tata Motors It fell between 1.5 percent and 4 percent.
According to Citi, local manufacturers will see competition “as the gap between high-end models from Indian OEMs and entry-level models from EU OEMs (currently imported) narrows.”
However, industry leaders and trade bodies in India welcomed the trade agreement as it still retained the majority of sales volumes.
Anish Shah, group chairman and managing director of Mahindra Group, said the deal is a “huge positive for the auto industry” as it will give Indian automakers duty-free access to markets in Europe and attract European auto companies to invest in India.
While most experts agree that European auto companies are unlikely to break the dominance of domestic automakers in the near term despite reduced trade barriers, competition is predicted to intensify as customer preferences evolve.
Gupta, founder of the tech startup, says he wants cars with better amenities to come to India and hopes that after the trade deal, European car companies will launch their latest models in India so that customers like him can have the latest amenities at “reasonable” prices.
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Canada’s Energy and Natural Resources Minister Tim Hodgson said the country is trying to diversify its trade relations with India and China even as it deals with negative reactions from the United States.
Oil India Chairman and Managing Director Ranjit Rath added that India’s dependence on oil imports is not expected to fall sharply, but the country is positioning itself as a global refining hub.
I need to know
India-US trade deal talks are at a very advanced stage. The highly anticipated trade deal between India and the US is at a “very advanced stage”, Indian Minister of Petroleum and Natural Gas Hardeep Singh Puri told CNBC on Tuesday. He said he hoped the deal would be announced “sooner rather than later.”
India and the EU have closed the “mother of all agreements”. The European Union and India finalized a free trade agreement on Tuesday that will eliminate or reduce tariffs on more than 90% of goods traded between them. India will reduce tariffs on imported European cars and the two sides will create a framework that allows mobility of talent.
The US SEC is trying to question Gautam Adani on fraud charges. The US Securities and Exchange Commission has sought approval from a US court to issue subpoenas to Adani Group executives on bribery and fraud charges. The US regulator said the Indian government had twice refused to issue earlier calls.
quote of the week
We have always used India as a strong innovation hub… If I take energy supply chains, there are only two places on the planet where we do fundamental research with energy players. One is Illinois in the United States and the second is Gurgaon in India.
— Anant Maheswari, president and general manager of Honeywell global regions
In the markets
Indian stocks were flat amid mixed trading in the region after the US Federal Reserve kept interest rates steady. Stylish 50 The index and BSE Sensex were little changed as of 1 pm local time on Thursday and are down over 3% so far this year.
The benchmark 10-year Indian government bond yield rose slightly to 6.716%. The Indian rupee was last marginally higher against the dollar to 91.965.
— Lee Ying Shan
approaching
January 29: Fiscal deficit as of end December
February 1: Indian government to present Union Budget for fiscal 2027
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