India-EU FTA: What the 'Mother Of All' Trade Deals Mean For Indian Auto Industry The India–Europe Free Trade Agreement (FTA) marks a historic milestone as it provides duty-free access to European markets and will attract European OEMs to invest further in India.

The India–Europe Free Trade Agreement (FTA) marks a historic milestone in strengthening economic cooperation between two major growth regions as it provides the next wave of economic impetus for India, building on the strong foundation laid by a number of policy reforms. This FTA will provide meaningful benefits across multiple sectors, especially the auto sector as it provides duty-free access to European markets and will attract European OEMs to invest further in India.

The EU-India FTA makes a significant departure from India's existing FTAs, with India agreeing to bring down tariffs on passenger cars from 110 per cent to 10 per cent over time. Most cars will initially move to a lower 30-35 percent tariff, which will further reduce to 10 percent over five to 10 years. Concessions in tariffs is agreed upon for 250,000 cars imported annually into India from the EU, a significant shift in India's trade posturing. However, under the new trade deal, India can export 625,000 vehicles to the EU, as EU's car market is bigger. This together with automotive component related concessions, is a significant move by India, with an eye on global supply chains.

While the pact was concluded on January 27, the India-EU FTA is expected to come into effect in the fiscal year 2027-28.

"Tariff reduction on cars is subject to a quota of 250,000 vehicles a year. Car manufacturers in India should be able to absorb this concession, given India's annual market size of 4.3million-plus units and growing. However, it would be important to understand the trade-off for automotive exporters in India. It needs to be seen if this tariff concession is offset by adequate tariff cuts by the EU, for cars and automotive components exported from India, especially vis-à-vis imports into EU from China and ASEAN countries. Value addition norms (origin rules) would also play an important role in manufacturers being able to benefit from reduced tariffs and may trigger investments to achieve the required value addition and localization in India," said Saurabh Kanchan, partner, Deloitte India.

The FTA marks tariff cuts on EU-made non-electric cars priced above INR 25 lakh in India, a move expected to benefit European luxury automakers, with the pact to come into force in 2027. "This agreement is very well designed, as it lowers in-quota duties only at higher priced segments which will enhance scale in the core segments relevant to Make in India for the world. We feel this will not change any competitive dynamics in the industry. The agreement ushers in a generational opportunity for a values-led partnership between two natural allies in a volatile world," said Dr Anish Shah, Group CEO and MD, Mahindra Group.

The cut on Completely Built Units (CBUs) will definitely be a boon for the luxury segment, but will only benefit a small section of the market, because most European luxury car brands such as Mercedes-Benz, BMW, Volvo, Jaguar Land Rover and Audi already assemble most of their cars in India. It's the high-end luxury and performance variants, which will see reduction in taxes. Sports cars from Porsche, Lamborghini and Ferrari will also benefit from the pact. However, currency depreciation and cost inflation will decide how the final price will be impacted. Even if there is some reduction in cost as a result of FTA, it might be offset by rising inflation.

The FTA in the long run will create opportunities to introduce new and niche products in India based on demand scales and will further open up localisation over time. BMW Group India president and CEO Hardeep Singh Brar said, "Pricing decisions remain closely linked to exchange rates and input costs. While we do not foresee any immediate price changes in the near future, the FTA could create opportunities to support deeper localisation over time."

For Indian manufacturers, this agreement accelerates access to advanced European markets while encouraging higher standards in innovation, ESG practices, and value-added exports. For Europe, it opens doors to India's rapidly expanding consumption base, skilled talent pool, and competitive manufacturing ecosystem. "Agreements of this scale don't just reduce tariffs—they transform business environments, strengthen supply-chain resilience, and open pathways for innovation-led Indian manufacturers to compete on the global stage. As a global two-wheeler company, with the TVS and Norton brands, we're focused on identifying and pursuing the opportunities it will create for Indian industry in Europe and beyond," said Sudarshan Venu, chairman, TVS Motor Company.

With bilateral trade already exceeding US$135 billion annually, the agreement unlocks a significant next phase of growth by targeting tariff liberalisation across over 90–95 per cent of traded goods over time. India can have a path towards China + 1 in its true sense. The top five European luxury brands, Mercedes-Benz, BMW, JLR, Audi and Volvo, sold 49,000 cars in India in financial year ended March 2025, according to data from S&P Global-owned Indian research and ratings agency Crisil.