India-EU Trade Deal Opens Premium Car Market With Gradual Tariff Reductions

The newly released draft of the India-European Union free trade agreement establishes a structured framework for automotive trade, granting European automakers an initial tariff-rate quota (TRQ) of 100,000 passenger vehicles annually. This agreement, which is expected to be signed by the end of 2026, marks a significant shift in India's import policy for internal combustion engine (ICE) and hybrid electric vehicles (HEVs). The quota is set to expand progressively, reaching 160,000 units by the tenth year of implementation, while in-quota duties for premium vehicles are scheduled to decline to 10 per cent by the fifth year.

For the Indian automotive sector, the deal serves as a double-edged sword, balancing increased competition in the premium segment with a substantial expansion of export opportunities. While European manufacturers gain a more accessible route for fully built units (CBUs), India has implemented specific safeguards to protect its mass-market segment. Vehicles priced below 15,000 euros remain excluded from tariff concessions, ensuring that the high-volume small-car market, which is dominated by domestic and Japanese manufacturers, continues to operate under existing tariff structures.

The agreement categorizes European vehicle imports into distinct price bands to manage the competitive impact on the domestic industry. For vehicles priced between 15,000 and 35,000 euros, the in-quota duty will drop from the current 110 per cent to 35 per cent in the first year, eventually reaching 10 per cent by the fifth year. For luxury vehicles priced above 35,000 euros, the duty will fall from the most-favoured-nation rate of 66 per cent to 30 per cent initially, also hitting 10 per cent by the fifth year.

Beyond the primary quota, India has also provided a separate tariff-rate quota for completely knocked-down (CKD) ICE and hybrid vehicles. This quota is set at 75,000 units annually for the first five years, before declining to 50,000 units from the tenth year. The in-quota duty for these locally assembled units will decrease from 16.5 per cent to 8.25 per cent by the third year, providing a clear incentive for European brands to maintain or expand their local assembly operations in India.

India has adopted a cautious, phased approach toward electric vehicle (EV) imports, effectively shielding its domestic EV manufacturers from immediate European competition. There will be no concessional CBU quota for European battery electric vehicles (BEVs) or plug-in hybrids (PHEVs) during the first four years of the agreement. Concessions for these technologies are scheduled to begin only in the fifth year, and they will be restricted to vehicles priced at 20,000 euros or more.

This four-year window provides critical breathing room for domestic players like Tata Motors and Mahindra & Mahindra, who have invested heavily in local EV platforms. When the concessions do begin in Year 5, the quota will start at 20,000 units, rising to 50,000 by the tenth year and 90,000 from the fourteenth year. The in-quota duty for these EVs will decline from 30 per cent in the fifth year to 10 per cent by the tenth year, maintaining a controlled transition for the sector.

While the deal increases import competition, it simultaneously offers Indian manufacturers a significantly larger window into the European market. The EU has agreed to an initial annual quota of 250,000 Indian-origin ICE and hybrid passenger vehicles priced up to 50,000 euros. This quota is set to rise to 400,000 units by the tenth year, with tariffs falling to zero by the fifth year. For Indian vehicles priced above 50,000 euros, the EU has removed quantitative quotas entirely, with tariffs phasing out to zero over five years.

This reciprocal arrangement is expected to benefit major exporters like Maruti Suzuki, which has already established India as a global production hub for its electric and ICE models. The agreement could also encourage other global automakers operating in India, such as Hyundai, Kia, and Honda, to leverage their Indian manufacturing bases for European exports, provided they meet the strict rules-of-origin requirements stipulated in the trade pact.

GTRI Founder Ajay Srivastava noted the significance of the deal, highlighting that the EU is the second major trade partner after the UK to secure such concessions. He warned that this could set a precedent, potentially leading other major automobile-producing nations like Japan and South Korea to demand similar preferential access. The agreement also includes administrative safeguards, such as requiring importers to submit pre-purchase agreements from EU-based OEMs and capping imports of any single CBU model at 15 per cent of the total quota.

To ensure the agreement remains aligned with market realities, the car quotas will undergo a formal review one year after the FTA enters into force, with subsequent reviews scheduled every five years. These reviews will account for inflation, demand shifts, and technological developments in the automotive sector. While the draft text was released on September 12, 2026, it remains subject to legal revision and formal ratification by both parties before it becomes legally binding.