EU outpaces US as New Delhi prepares to cut tariffs on imported cars

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Ashita Gupta, the founder of a New Delhi-based technology startup, loves cars. With the prospect of cheaper luxury cars in Europe, Mr. Gupta, who drives an Audi A6, is considering buying another luxury car.

She says it “doesn’t make sense” to spend that much on a second car, but that it would be worth buying an Audi R8 or Audi RS4 when they become “affordable”.

India and the European Union on Tuesday announced a “mother of all agreements” that includes New Delhi reducing import duties on European cars to 10% in stages from the current 70-110%. This applies to an annual quota of 250,000 vehicles and to vehicles costing more than 15,000 euros ($17,952).

India has long protected the world’s third-largest auto market by imposing exorbitant tariffs on imports to protect domestic auto companies while encouraging global companies to build local manufacturing plants.

Indeed, US President Donald Trump has often criticized India for shielding the local auto industry from imports and has called for lower tariffs on US car companies, calling them “very unfair.”

Brussels has now outperformed Washington in getting New Delhi to reverse its hardline stance on car tariffs, securing a lucrative deal for Europe’s auto giants.

“European brands now have a premium pass to the world’s third-largest car market, while U.S. companies now face a huge levy,” Omdia auto analyst Diwakar Murugan told CNBC. Omdia estimates that the Indian car market will reach 6 million vehicles by 2030, driven by a growing number of young people with higher disposable incomes.

Nearly 95% of cars sold in fiscal 2025 were priced below 2 million rupees ($21,756), according to data from Indian research and ratings firm Crisil, part of S&P Global.

But car experts say that even if customs duties are lowered, the price of imported European cars will exceed this range because local taxes will be added to the final price. Therefore, the overall market addressable by European car companies will remain limited.

India’s mass car market is dominated by Maruti Suzuki and Hyundai, which have been manufacturing in India for more than 20 years, and local companies Tata and Mahindra, whose mass-produced models cost less than Rs 2.5 million.

The European Automobile Manufacturers’ Association said in a statement that the India-EU deal “will go a long way in helping European car exports tap into the 4 million passenger car market, which has been protected by prohibitively high import duties up until now,” while pointing to restraints such as “quotas and residual tariffs that limit potential profits to some extent.”

Europe’s top 5 luxury brands, mercedes benz, BMW, JLR, Audi, volvoThe company sold 49,000 cars in India in the fiscal year ended March 2025, compared to total passenger car sales of 4.3 million, according to data from Indian research and ratings firm Crisil, owned by S&P Global.

Puneet Gupta, director of technical research at S&P Global Mobility, said European car companies dominate the luxury car segment, but their overall position is “under increasing pressure” due to shrinking market share.

He explains that while Indian and Korean manufacturers have been “aggressively expanding their presence through capacity expansion, frequent product launches, and rapid network growth,” Europeans have been more cautious with their investments in recent years.

Mr. Gupta said European companies may be forced to rethink their India business plans as trade barriers ease under a free trade agreement that is likely to come into force later this year.

Hardeep Singh Brar, President and CEO, BMW Group India, echoed similar sentiments.

“FTAs can create opportunities to introduce new or niche products, and if demand grows, they could support deeper localization over time,” Buller told CNBC in an email exchange. German automaker BMW Group’s Indian unit, which manufactures more than 95% of its cars locally, sold just over 18,000 units in 2025, its highest ever.

This potential FTA, coupled with evolving consumer preferences, has raised some concerns among auto investors in India. This is because the move to significantly lower tariffs exposes market leaders to increased competition in high-margin areas.

“The real battleground is the premium SUV segment above Rs 230,000,” said Omdia’s Murugan. He further added, “By allowing European brands to land vehicles at competitive prices within this framework, this agreement could create a conflict between European badge values ​​and India’s flagship SUVs.”

Some locally produced luxury cars such as Mahindra Scorpio and Tata Safari are priced close to Rs 2.5 million and are popular with customers.

After the deal was announced on Tuesday, shares of major Indian auto companies, including: Mahindra & Mahindra, hyundai motor india, maruti suzuki and tata motors It fell between 1.5% and 4%.

According to Citi, domestic manufacturers will face competition “as the gap between high-end models from Indian OEMs and entry-level models from (currently imported) EU OEMs narrows.”

However, Indian industry leaders and trade associations have welcomed the trade deal, saying it still protects a large portion of sales volumes.

Mahindra Group Group CEO and Managing Director Anish Shah said the agreement is a “huge positive for the auto sector” as it will give Indian automakers duty-free access to the European market and attract European auto companies to invest in India.

Most experts agree that even with lower trade barriers, European car companies are unlikely to disrupt the dominance of local automakers in the short term, but competition will intensify as customer preferences evolve.

The tech startup founder said she wants cars with better amenities to come to India, and said she hopes that after the trade deal, European car companies will launch their latest models in India and customers like her will be able to enjoy the latest amenities at “affordable” prices.

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Tim Hodgson, Canada’s Minister of Energy and Natural Resources, said the country is working to diversify its trade relationships with India and China while dealing with negative reactions from the United States.

Ranjit Rath, chairman and managing director of Oil India, said India’s dependence on oil imports is unlikely to decline sharply, but added that India is positioning itself as a global refining hub.

need to know

Trade agreement negotiations between India and the US are at a very advanced stage. The long-awaited trade deal between India and the United States is at a “very advanced stage,” Indian Oil and Natural Gas Minister Hardeep Singh Puri told CNBC on Tuesday. He said he expected the deal to be announced “sooner rather than later.”

India and EU sign ‘mother of all agreements’. The European Union and India signed a free trade agreement on Tuesday that eliminates or reduces tariffs on more than 90% of goods traded between the two countries. India will reduce import duties on European cars and the two countries will create a framework to enable talent mobility.

The US SEC is seeking questioning of Gautam Adani on fraud charges. The Securities and Exchange Commission has asked a US court for permission to subpoena Adani Group executives on charges of bribery and fraud. US regulators said the Indian government had twice refused to serve previous subpoenas.

at the market

Indian stock markets were flat amid mixed trading in the region after the US Federal Reserve left interest rates unchanged. of nifty 50 As of 1pm local time on Thursday, the index and the BSE Sensex were little changed, having fallen more than 3% year-to-date.

The benchmark 10-year Indian government bond yield rose slightly to 6.716%. The Indian rupee last appreciated slightly against the dollar to $91.965.

— Li Yingshan

very soon

January 29: Budget deficit as of end of December

February 1: Government of India presents Union Budget for FY 2027

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