Following two decades of intermittent negotiations, India and the European Union (EU) have officially signed a Free Trade Agreement (FTA) that will fundamentally alter the pricing landscape for imported European automobiles. The agreement stipulates a phased reduction of import tariffs, which currently stand as high as 110 percent, down to a floor of 10 percent for a specified annual volume of vehicles.
Phased Tariff Reductions and Quotas
The new trade framework introduces a quota system, allowing up to 250,000 European-made vehicles to enter the Indian market at the reduced 10 percent rate annually. This is a significant departure from the existing tax structure, where vehicles priced under $40,000 attract a 70 percent duty, and those exceeding $70,000 are taxed at 110 percent. Additionally, the agreement outlines the complete removal of tariffs on automotive components over a five-to-ten-year period.
Focus on Internal Combustion Engines
A critical caveat of the FTA is its exclusive application to internal combustion engine (ICE) vehicles. Despite the global shift toward electrification, the current deal does not extend tariff relief to electric vehicles (EVs). Imported EVs will continue to face duties of up to 110 percent based on their declared value. Key details regarding the specific price brackets eligible for these cuts are expected to be clarified as the implementation phase begins, likely within the next year.
Impact on the Luxury and Performance Segment
The reduction is poised to benefit the high-end luxury and sports car sectors most directly. Manufacturers that rely on the Completely Built Unit (CBU) route for their flagship models stand to gain a competitive edge. Notable beneficiaries include:
- High-performance brands such as Ferrari, Lamborghini, and Porsche.
- Luxury manufacturers like Mercedes-Benz for their top-tier variants.
- European volume players looking to introduce niche premium models.
A 20-Year Negotiation Milestone
The signing marks the conclusion of a diplomatic process that began in 2007. After talks were suspended in 2013 and remained dormant for nearly a decade, discussions were revived in 2022. The final technical negotiations were concluded in October 2025, leading to this landmark agreement in early 2026.
