European carmakers will get concessional access to the Indian market for up to 100,000 internal combustion engine (ICE) and hybrid cars in the first year of the India-European Union (EU) free trade agreement (FTA) — nearly six times the 17,191 cars India imported from the bloc in 2025 — intensifying competition for domestic automakers even as the deal opens a much larger export window for companies such as Maruti Suzuki, Tata Motors and Mahindra & Mahindra.
The detailed tariff schedules released with the FTA show that India’s quota for European ICE and non-plug-in hybrid cars will rise to 160,000 units by Year 10, with in-quota duties falling to 10 per cent by Year 5.
In return, the EU will give Indian-origin ICE and hybrid cars priced up to 50,000 euros a quota of 250,000 units in the first year, rising to 400,000 by Year 10, with the tariff falling to zero by Year 5.
The competitive impact will, however, be uneven. India has kept ICE and hybrid cars priced below 15,000 euros outside the concessions, protecting the mass-market segment, while European electric vehicles will not receive concessional access for the first four years.
EV concessions begin only in Year 5 and exclude vehicles priced below 20,000 euros.
Policy think tank Global Trade Research Initiative (GTRI) said the size of the opening was significant given existing trade flows.
India imported only 17,191 cars from the EU in 2025, compared with the first-year quota of 100,000 ICE and hybrid completely built units (CBUs). It also pointed out that tariffs on imports outside the quota will progressively decline, widening market access beyond the headline tariff-rate quota (TRQ) over time.
Mass-market cars remain protected
The concessions have been structured to largely protect India’s mass-market passenger vehicle segment.
ICE and hybrid cars with a cost, insurance and freight (CIF) value below 15,000 euros will receive no tariff concession.
For cars priced between 15,000 euros and 35,000 euros, the in-quota duty will fall from the current base rate of 110 per cent to 35 per cent in the first year, before progressively declining to 10 per cent by the fifth year.
For cars priced above 35,000 euros, the concessional duty starts at 30 per cent in the first year and similarly reaches 10 per cent in the fifth year.
This means the immediate competitive impact is likely to be concentrated more in the premium and luxury end of the Indian passenger vehicle market than in the high-volume small-car segment dominated by Indian and Japanese manufacturers.
The agreement could give European automakers considerably greater flexibility to bring niche models and higher-end variants into India as CBUs without necessarily committing to local assembly at relatively small volumes.
At the same time, companies already assembling vehicles in India will have another option for models whose volumes may not initially justify localisation.
CKD route also gets lower tariffs
The FTA contains a separate concession for completely knocked down (CKD) imports, which are assembled locally.
The quota for ICE and hybrid CKDs is 75,000 vehicles annually during the first five years, declining progressively to 50,000 from the tenth year.
The in-quota duty falls from the current 16.5 per cent to 13.75 per cent in the first year, 11 per cent in the second year and 8.25 per cent from the third year.
The structure therefore provides European manufacturers both an import route for fully built cars and a lower-duty route for models assembled in India.
Importantly, protection outside the quota will also weaken gradually.
For eligible ICE and hybrid cars exceeding the quota, tariffs that currently stand at either 110 per cent or 66 per cent, depending on the category, will decline over 10 years.
By the tenth year, the out-of-quota tariff will be 35 per cent for cars in the 15,000-50,000 euros price bands and 30 per cent for cars priced above 50,000 euros. Cars below 15,000 euros remain outside the concession.
GTRI said the agreement therefore represents a substantial opening of a sensitive sector rather than merely a small preferential import quota.
The think tank also pointed to the precedent created by the automobile concessions.
The EU is the second major trading partner after the United Kingdom to secure preferential automotive access under an Indian FTA, and similar demands could now come from major automobile-producing countries such as Japan and South Korea, it said.
EVs get longer protection
India has taken a more cautious approach to electric vehicles.
There will be no concessional CBU quota for European battery electric vehicles (BEVs), plug-in hybrids (PHEVs) and other new-technology passenger vehicles during the first four years of the agreement.
The concession starts in the fifth year and applies only to vehicles priced at 20,000 euros or more.
The quota begins at 20,000 vehicles in Year 5 and increases to 50,000 in Year 10 and 90,000 from Year 14.
The in-quota tariff falls from 30 per cent in Year 5 to 26 per cent in Year 6, 22 per cent in Year 7, 18 per cent in Year 8, 14 per cent in Year 9 and 10 per cent from Year 10.
EVs priced below 20,000 euros receive no concession.
The four-year delay gives Indian manufacturers additional time to scale up EV production and platforms before facing substantially lower-duty European imports.
For companies such as Tata Motors and Mahindra & Mahindra, which have invested heavily in domestic electric passenger vehicles, this provides a transition period before European EVs become eligible for the concessional regime.
The quota itself is also divided by price bands, limiting the extent to which any one segment can dominate preferential imports.
India has retained additional safeguards in administering the quotas.
Importers will have to submit a pre-purchase agreement from an EU-based original equipment manufacturer (OEM). India can give preference to longstanding traditional automobile manufacturers established in the EU and can cap imports of any single CBU model at 15 per cent of the overall passenger-car quota, subject to an absolute ceiling of 25,000 units a year.
The car quotas will also be reviewed one year after the FTA enters into force and every five years thereafter, taking into account market and regulatory developments, demand, inflation, price bands and the distribution of quotas among different propulsion technologies.
Bigger export window for India
While lower import tariffs increase competition in India, the reciprocal EU concessions could create a considerably larger opportunity for Indian manufacturing.
For Indian-origin ICE and non-plug-in hybrid passenger vehicles priced up to 50,000 euros CIF, the EU will provide an initial annual quota of 250,000 vehicles.
The quota increases to 268,750 in Year 2, 325,000 by Year 5 and 400,000 from Year 10.
Within this quota, the EU tariff falls from 8 per cent in the first year to 6 per cent in the second, 4 per cent in the third and 2 per cent in the fourth, before becoming zero from Year 5.
For Indian ICE and hybrid vehicles priced above 50,000 euros, there is no quantitative quota. The EU tariff itself falls from 8 per cent to zero over five years.
The opportunity is particularly relevant for manufacturers that are already building export-oriented capacity in India.
Maruti Suzuki, India’s largest passenger vehicle exporter, exported a record 447,000 vehicles in FY26, up more than 34 per cent year-on-year, accounting for nearly half of India’s passenger vehicle exports.
The company has also begun exporting its India-made e VITARA to Europe, with its Hansalpur facility in Gujarat serving as the global production hub for Suzuki’s first battery electric vehicle.
The company said it had shipped more than 25,000 e VITARAs to 44 countries during FY26.
The FTA could therefore strengthen the economics of using India as an export manufacturing base for Europe, particularly as tariffs decline.
For Tata Motors and Mahindra & Mahindra, the agreement creates a potential route to build exports if their new-generation SUVs and EVs are homologated and positioned for European markets.
Mahindra, for instance, has been adding ICE and electric SUV capacity and has said its new NU_IQ architecture is intended to support products for both India and global markets.
The benefit is not restricted to Indian-owned companies.
The agreement could also strengthen India’s role as an export base for global automakers such as Hyundai, Kia, Toyota, Honda, Renault and Nissan, which already manufacture vehicles in India, provided their exported models meet the FTA’s rules-of-origin requirements.
EU EV concessions for India phase in slowly
The EU’s concessions for India-made EVs are more gradual.
For BEVs, PHEVs and other non-ICE technologies priced up to 40,000 euros, there is no preferential quota during the first four years.
The quota begins at 27,500 units in Year 5, rises to 60,500 by Year 9 and reaches 125,000 from Year 14.
The in-quota tariff declines from 8 per cent in Year 5 to zero from Year 9.
The FTA could thus work in two directions for India’s automobile industry: European manufacturers get substantially cheaper access to India’s premium vehicle market, while manufacturers operating out of India get a progressively lower-tariff route into one of the world’s largest automobile markets.
The immediate impact is likely to be greater on imports because European premium manufacturers already sell in India, whereas exploiting the export concessions will require Indian manufacturers to develop products that meet European regulatory and consumer requirements, establish distribution and after-sales networks, and build sufficient scale.
The agreement could also affect localisation strategies.
The EU says tariffs on most car parts entering India will be eliminated over five to 10 years, potentially lowering the cost of imported European components for locally manufactured vehicles, but also increasing competitive pressure on domestic component suppliers.
The FTA negotiations were concluded in January 2026, but the published text is not yet legally binding.
The European Commission has said the text can undergo legal revision and will become binding only after the parties complete the procedures required for the agreement to enter into force. European luxury carmakers such as Mercedes-Benz, BMW and Audi could be among the more immediate beneficiaries of India’s tariff concessions. While these companies already assemble several high-volume models locally, sharply lower duties on CBUs could make it viable to bring a wider range of niche, performance and high-end models from Europe without first committing to local assembly. The separate tariff concessions for CKD vehicles could also lower the cost of assembling additional models in India.
