Mother of all deals: India slashes car import tariffs to 40% in EU trade pact

India is preparing to cut car import tariffs from some of the highest levels in the world, marking its biggest step yet toward opening its vast auto market to Europe, sources told Reuters.

Under a near-final trade deal with the European Union, India will reduce import duties on certain European cars to 40%, down from rates that can reach 110%. The cut applies to a limited number of cars priced above 15,000 euros, according to two people familiar with the talks.

The agreement is expected to be announced as early as Tuesday, ending years of slow and difficult negotiations. Officials on both sides declined to comment, citing confidentiality.

Import Tariffs and the Free Trade Agreement

The planned tariff cut is part of a broader Free Trade Agreement that both sides have dubbed the “mother of all deals.” Over time, duties on qualifying vehicles will fall further to 10%, the sources said.

India is the world’s third-largest car market by sales, but it has long protected local manufacturers with steep import taxes. Those policies have drawn criticism from global auto executives and limited foreign brands to niche roles.

Winners: Volkswagen, Mercedes-Benz, BMW

Lower duties are expected to benefit European carmakers including Volkswagen (VOWG.DE), Mercedes-Benz (MBGn.DE) and BMW (BMWG.DE). These firms already build some cars in India but have struggled to grow due to high import costs.

The new structure allows automakers to test demand with imported models before committing to larger local investments, one source said.

EVs Left Out, For Now

Battery electric vehicles will not see any tariff cuts for the first five years. India wants to protect domestic EV investments led by Mahindra & Mahindra and Tata Motors. After five years, EVs will follow similar reductions.

European brands currently hold less than 4% of India’s 4.4-million-unit car market, which is dominated by Suzuki and local manufacturers. With the market projected to reach 6 million vehicles a year by 2030, global automakers are already lining up new investment plans.

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