EU-India FTA: Car Tariffs Drop 110% → 10% + 250k Quota

The EU-India Free Trade Agreement (FTA), sealed on January 27, 2026, delivers one of its biggest sectoral wins in the automotive industry. India’s notoriously high import duties on fully built-up passenger vehicles—often reaching 110% through a combination of basic customs duty, cesses, IGST, and compensation cess—have long made European cars a luxury few could afford. The deal introduces a phased tariff-rate quota (TRQ) system that slashes these barriers dramatically for a capped volume of imports, opening India’s fast-growing market to European brands while protecting domestic manufacturers.

India is now the world’s third-largest passenger vehicle market, with strong demand in premium and luxury segments. European OEMs like Volkswagen, BMW, Mercedes-Benz, Audi, and Renault have struggled for deeper penetration due to these duties. The FTA changes that equation, offering controlled but meaningful access that could reshape pricing, competition, and investment flows.

Tariff Cuts: From 110% to 10% Under Quota Limits

At the core is a generous quota of 250,000 vehicles per year for EU-origin cars, where duties drop significantly.

Duties on qualifying vehicles fall from 110% to as low as 10% over a phased period (typically 5–10 years, with initial cuts to 30–35% upon implementation in many cases).
The quota is six times larger than concessions in India’s recent UK FTA (37,000 units).
Cars priced below approximately €15,000–€20,000 (roughly ₹15–20 lakh) are generally excluded and remain at higher tariffs.
Higher-priced vehicles (above the threshold) are segmented into categories with separate quotas and tariff paths.
Electric vehicles (EVs) see delayed benefits: tariff reductions begin from year five, with final quotas split (e.g., 160,000 ICE and 90,000 EVs in some breakdowns).
No concessions on Completely Knocked Down (CKD) kits, preserving local assembly incentives.
Imports outside the quota stay at full duties.

This TRQ mechanism allows controlled liberalization: European exporters get preferential access for a substantial but capped volume, preventing market flooding while giving them a competitive edge.

European Winners: Premium Brands Gain Momentum

European carmakers stand to benefit most immediately in the premium and luxury segments.

German trio (BMW, Mercedes-Benz, Audi): High-end models could see effective price reductions of 50–70% within quota, making them far more competitive against local luxury assemblers.
Volkswagen Group and Renault: Mid-to-premium offerings gain traction, supporting expansion plans in India.
Stellantis and others: Potential for SUV and crossover growth.

Lower duties mean savings that can fund better marketing, dealer networks, or pricing strategies. Combined with eventual zero tariffs on many car parts (phased over 5–10 years), European firms can integrate Indian supply chains more deeply—reducing global production costs and enabling hybrid strategies (import premium models, assemble volume locally).The timing is critical: European automakers face U.S. tariffs, Chinese price wars, and domestic market saturation. India offers high-growth potential, with passenger vehicle sales expected to rise sharply.

Indian Market & Consumers: More Choice, Targeted Impact

Indian buyers in premium segments gain significantly. Luxury imports could become 30–50% cheaper within quota limits, fueling aspirational demand among the growing affluent class.

Mass-market segments see minimal direct change.
Domestic giants (Tata, Mahindra, Maruti Suzuki, Hyundai) face competition mainly in luxury/SUV niches, not volume categories.
EV protections: Battery electric vehicles excluded initially for five years to safeguard local investments (Tata, Mahindra, etc.).

Overall, the market may see stimulated premium demand in 2026–2027, with renewed European focus on dealerships, service networks, and marketing.

Supply Chains, Investment, and Broader Effects

Beyond finished vehicles, reduced tariffs on parts enable deeper integration. European suppliers can export components duty-free, lowering costs for Indian assembly lines and facilitating technology transfers.This aligns with India’s “China+1” strategy and the EU’s de-risking goals. Joint ventures, R&D collaborations, and green tech partnerships (especially post-year-five EVs) could accelerate. The deal complements India’s production-linked incentives (PLI) for autos, attracting more FDI.

Safeguards and Challenges

The quota prevents disruption to domestic jobs (India’s auto sector employs millions). Sensitive areas remain protected—no full liberalization, no CKD concessions. Ratification, monitoring, and potential safeguards against surges are key to smooth rollout.

Domestic concerns include pressure on local luxury assemblers, but analysts view the approach as balanced and calibrated.

Accelerating Bilateral Auto Ties

The EU-India FTA’s auto provisions represent landmark liberalization, dropping duties from 110% to 10% under a 250,000-vehicle quota. European exporters gain meaningful entry to a booming market, while India secures investment, technology, and resilient supply chains. As tariffs phase down and parts flow more freely, the deal promises innovation, competition, and sustained growth—truly revving up auto sector ties between the two regions.