India and the European Union are on the verge of finalizing a Free Trade Agreement (FTA) that could significantly alter the landscape of India's automotive market, particularly for luxury electric vehicles (EVs). The 16th EU-India Summit scheduled for January 27, 2026, in New Delhi, may see the unveiling of the FTA, marking the culmination of negotiations that have been ongoing, with some pauses, since 2007.
The FTA aims to eliminate tariffs on over 90% of traded goods between India and the 27-nation EU bloc. While sectors like agriculture and dairy are likely to remain outside the purview of the agreement, the automotive industry is expected to see significant changes. Currently, India levies customs duties of up to 100% on imported cars. The FTA could bring these rates down to 10-15% for European cars within a defined quota over the next few years. Some reports suggest that the duty cuts may be implemented in a phased manner and may initially apply only to cars with a minimum CIF (cost, insurance, and freight) value in the range of $25,000-$35,000.
The reduction in import duties is poised to make luxury vehicles more accessible to Indian consumers. Brands like Porsche, Land Rover, BMW, Mercedes-Benz, and Audi could see a significant boost in sales as a 25-35% reduction in on-road prices could unlock a new generation of buyers.
The potential for increased imports of luxury EVs from Europe is particularly noteworthy. As India pushes for cleaner transportation, the FTA could accelerate the adoption of EVs by making European models more competitively priced. Tesla, which has been eyeing the Indian market, may also take advantage of the reduced tariffs to import vehicles from its Berlin facility.
However, concerns have been raised about the potential impact of the FTA on domestic manufacturers. BMW India's CEO, Hardeep Singh Brar, warned that Chinese manufacturers might exploit the agreement by routing vehicles through Europe to take advantage of the FTA. Brar suggested a price cap of around Rs 21 lakh and strict checks to prevent the entry of cheap cars that could undermine domestic manufacturing. Preserving the interests of domestic automakers remains a key consideration for the Indian government during the FTA negotiations.
The India-EU FTA is expected to reshape supply-chain flows at a time when governments are rethinking their economic dependencies. For the EU, the FTA provides deeper access to India's large and rapidly growing market and diversifies supply chains away from China. India, on the other hand, would benefit from increased exports of various products, the attraction of foreign direct investment (FDI), and access to advanced R&D and capital.
If implemented thoughtfully, the India-EU FTA has the potential to be a win-win situation, fostering trade, investment, and innovation in both regions. The reduction in import duties on automobiles, particularly luxury EVs, could drive growth in India's automotive sector and accelerate the transition to electric mobility.
