India to slash tariffs on cars to 40% in trade deal with EU, sources say

Sources said India plans to reduce customs duties on cars imported from the European Union to 40% from a high of 110%; This would be the biggest-ever opening of the country’s vast market as the two sides move closer to a free trade agreement that could happen as early as Tuesday, January 27, 2026.

Prime Minister Narendra Modi’s government has agreed to immediately reduce duty on a limited number of cars priced above 15,000 euros ($17,739) on imports from the 27-nation bloc, two sources with knowledge of the talks said. Reuters.

This will be reduced to 10% over time, they added, making it easier for European automakers such as Volkswagen, Mercedes-Benz and BMW to access the Indian market.

The sources declined to be identified because the talks are confidential and could be subject to last-minute changes. India’s Ministry of Commerce and the European Commission declined to comment.

The Pact is already known as the ‘mother of all agreements’

India and the EU are expected to announce the conclusion of protracted negotiations for a free trade agreement; After that, both parties will finalize the details and approve the so-called “mother of all agreements” agreement.

The deal could expand bilateral trade and boost India’s exports of goods such as textiles and jewellery, which have been hit by a 50% US tariff since late August. India is the world’s third-largest auto market in terms of sales after the US and China, but its domestic auto industry has been one of the most protected. New Delhi currently imposes duties of 70 percent and 110 percent on imported cars; This has been frequently criticized by executives, including Tesla chief Elon Musk.

New Delhi has proposed immediately cutting import duties to 40% on about 200,000 internal combustion engine cars a year, one of the sources said, the most aggressive move yet to open up the sector. This quota may be subject to last-minute changes, the source added.

Battery electric vehicles will be excluded from import duty cuts for the first five years in a bid to protect investments in the nascent sector by domestic players such as Mahindra & Mahindra and Tata Motors, two sources said. Five years later, similar tax cuts will be made on electric vehicles.

The market is currently dominated by Suzuki and local brands

Lower import duties will be a boost for European automakers such as Volkswagen, Renault and Stellantis, as well as luxury players Mercedes-Benz and BMW, which manufacture cars locally in India but have struggled to grow in part due to high tariffs.

Lower taxes would allow automakers to sell imported vehicles at lower prices and test the market with a broader portfolio before committing to producing more cars locally, one of the two sources said.

European automakers currently hold less than a 4% share of India’s 4.4 million-unit-a-year car market; This market is dominated by Japan’s Suzuki Motor as well as domestic brands Mahindra and ⁠Tata, with two-thirds together.

While the Indian market is expected to reach 6 million units per year by 2030, some companies are already lining up for new investments.

Renault is returning to India with a new strategy as it looks to expand outside Europe, where Chinese automakers are making strong inroads, and Volkswagen Group is completing the next leg of its investment in India through its Skoda brand.