As India and the European Union (EU) approach the announcement of a landmark Free Trade Agreement (FTA), European automakers are reportedly accelerating their localisation efforts in the Indian market. The FTA, potentially revealed as early as today, January 27, 2026, is expected to significantly reduce import duties on European-made cars. This move is anticipated to intensify competition and alter the dynamics of India's automotive landscape.
Under the terms of the FTA, import duties on EU-built cars priced above €15,000 (Rs 16.28 lakh) that meet specific criteria will immediately drop from as high as 110% to 40%. Further reductions are planned over the coming years, eventually bringing the duties down to 10%. This phased reduction aims to provide a smoother transition for both European manufacturers and domestic players.
However, the FTA stipulates that import duty reductions will not apply to electric vehicles (EVs) for the first five years after the agreement is finalized and ratified. This measure is designed to protect the interests of Indian EV manufacturers like Mahindra and Tata, who have heavily invested in EV technology. After this initial period, EVs are expected to follow a similar duty-reduction path.
The automotive industry is reacting positively to the impending FTA. BMW Group India President and CEO Hardeep Singh Brar stated that the agreement signals strong confidence in India's long-term growth and its emergence as a globally competitive economy. He added that a balanced FTA could stimulate demand in the luxury segment and strengthen supply chain integration. While imports of completely built units (CBUs) constitute only about 5% of BMW India's sales, Brar believes that the new framework would allow the company to expand its product portfolio and potentially support deeper localisation as volumes increase.
The duty cuts are expected to provide a significant boost to European automakers such as Volkswagen, Mercedes-Benz, BMW, Renault and Stellantis. While many of these brands already have local manufacturing operations, they face constraints due to high import costs. The reduced tariffs will allow them to offer a wider range of models and test market demand before committing to further local production.
Currently, European brands account for less than 4% of India's 4.4-million-unit car market, which is dominated by Suzuki Motor and Indian manufacturers Tata and Mahindra. The FTA is expected to create a more level playing field, encouraging European automakers to ramp up their localisation efforts to remain competitive. This could involve increasing the local sourcing of components, expanding production capacity, and investing in research and development.
The India-EU FTA is described as the "mother of all deals" and is expected to significantly expand bilateral trade, while boosting Indian exports such as textiles and jewelry.
