India is planning a significant reduction in import duties on cars from the European Union, cutting tariffs to 40% from as high as 110%, in what would be the country’s biggest move yet to open up its highly protected automobile market, sources familiar with the discussions said.
The proposed duty cut comes as India and the EU near the conclusion of a long-pending free trade agreement (FTA), which could be announced as early as Tuesday, January 27, 2026. The pact has been dubbed the “mother of all deals” due to its potential to substantially expand bilateral trade.
According to sources briefed on the talks, the Narendra Modi-led government has agreed to immediately lower import taxes on a limited number of EU-made cars priced above €15,000 ($17,739). Over time, these duties would be reduced further to 10%, significantly easing access to the Indian market for European automakers such as Volkswagen, Mercedes-Benz and BMW. The sources requested anonymity as negotiations are confidential and subject to last-minute changes. India’s Commerce Ministry and the European Commission declined to comment.
India currently imposes import duties of 70% to 110% on foreign cars, a policy that has long drawn criticism from global auto executives. Under the proposal, New Delhi would cut duties to 40% immediately for up to 200,000 combustion-engine cars annually, marking the most aggressive liberalisation of the sector so far. The quota, however, may still be revised before finalisation.
Battery electric vehicles (EVs) will be excluded from the duty reductions for the first five years to protect investments by domestic manufacturers such as Tata Motors and Mahindra & Mahindra in the emerging EV segment. After this period, EVs are expected to see similar tariff cuts, the sources said.
Lower import taxes are expected to benefit European automakers including Volkswagen, Renault and Stellantis, as well as luxury brands Mercedes-Benz and BMW, which already manufacture vehicles in India but have faced growth constraints due to high tariffs. Reduced duties would allow companies to offer imported models at more competitive prices and test the market with a wider range of vehicles before committing to larger local manufacturing investments.
India is the world’s third-largest car market after the United States and China, with annual sales of about 4.4 million units. However, European automakers currently account for less than 4% of the market, which is dominated by Suzuki Motor of Japan and Indian brands Tata Motors and Mahindra, together controlling nearly two-thirds of sales.
With India’s car market projected to grow to around 6 million units annually by 2030, several global automakers are lining up fresh investments. Renault is re-entering the Indian market with a new growth strategy, while Volkswagen Group is finalising its next phase of investment through its Skoda brand.
The India-EU free trade agreement is also expected to boost Indian exports such as textiles and jewellery, which have faced pressure from higher U.S. tariffs since late August, further underscoring the deal’s economic significance.
