The India-European Union, or EU Free Trade Agreement (FTA) could bring a significant change for India’s automobile industry. The long-running negotiations have now reached a draft deal. It proposes reducing tariffs on the import of European cars into India and opening the market in Europe for Indian cars.
Under the deal, quotas have also been set for steel exports along with cars. Therefore, it is important to understand what impact this FTA could have on the Indian and European auto markets.
What’s Happening?
The proposed FTA between India and the European Union contains several important concessions for the automobile and steel sectors. The announcement of this deal was made on 27 January. It is expected to be signed by the end of this year and to come into effect from next year.
In the automobile sector, lower import duties and higher preferential tariffs could reduce the prices of European cars in India. This raises the possibility of increased entry of European vehicles into the Indian market.
In the steel sector, India has been given a total export quota of 1.64 million tonnes under 16 categories. This includes 0.69 million tonnes as the FTA component and 0.95 million tonnes as the Most Favoured Nation, or MFN, component. Under the European Union’s steel overcapacity regulation, a total free-of-duty quota of 18.3 million tonnes has been fixed. Steel imports exceeding this limit will attract 50% duty.
Major Tariff Cuts on European Cars
According to the draft, in the first year the European Union will get a tariff rate quota for 1,00,000 completely built-up (CBU) internal-combustion and non-plug-in hybrid cars. This is approximately six times the 17,191 European cars imported by India in 2025. By the 10th year, this quota will increase to 1,60,000 cars.
This concession will apply to cars priced above 15,000 euros. For cars priced between 15,000 and 35,000 euros, the in-quota duty will fall from 110% in the first year to 35%, and will become 10% by the 5th year. For cars priced above 35,000 euros, the duty will be 30% in the first year and will come down to 10% over time.
No concession will be given to cars priced below 15,000 euros. Meanwhile, from the 5th year, a quota of 43,000 units will be reserved for cars priced above 50,000 euros.
Concessions on BEVs, plug-in hybrids and cars with other technologies will begin from the 5th year. This will apply to vehicles priced at 20,000 euros or more. Their CBU quota will start at 20,000 in the 5th year, rise to 50,000 in the 10th year, and reach 90,000 by the 14th year.
New Market in Europe for Indian Cars
The second major aspect of the FTA is better access to the European market for Indian cars. According to the draft, the European Union will allow entry to 2.5 lakh Indian-made passenger vehicles every year at a concessional duty of 8%. This quota will increase to 4 lakh vehicles from the 10th year.
This concession will apply to Indian-origin ICE passenger cars and hybrid electric vehicles (HEV) with a CIF price of up to 50,000 euros. The concessional duty will become 6% in the second year, 4% in the third year, 2% in the fourth year, and zero in the fifth year. For cars priced above 50,000 euros as well, the duty will reduce gradually and become zero by the 10th year.
Separate TRQs have been fixed for BEVs, PHEVs and cars with other technologies. For cars up to 40,000 euros, the quota will start at 27,500 units in the 5th year and reach 1,25,000 units by the 14th year. The quota for cars between 40,000 and 60,000 euros will rise from 16,250 to 75,000, and for cars above 60,000 euros from 6,250 to 25,000 units.
What Does This Mean for Investors?
Compared with India’s import of only 17,191 European cars in 2025, a quota of 1,00,000 cars in the first year and up to 1,60,000 by the 10th year could open a large market in India for European cars.
On the other hand, concessional access of 2.5 lakh to 4 lakh vehicles in Europe could become a major export opportunity for Indian auto companies. With duty on ICE and HEV cars becoming zero by the 5th year, this opportunity could grow further. In the EV segment as well, the separate TRQs give Indian companies the opportunity to plan for the European market over the long term.
What’s Next?
The impact of the India-EU FTA will not remain limited only to car prices. It could also affect auto companies’ export strategies, powertrain technology, and India’s role in the global supply chain.
The concessions in the deal have been kept phased, which will give the Indian auto industry time to adjust. At the same time, the minimum price thresholds of 15,000 and 20,000 euros and the 1.64 million tonne quota in steel show an attempt to balance industry and trade concessions.
If this deal comes into effect next year, a new structure for automobile trade between India and the European Union could take shape in the coming years.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
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