The highly anticipated free trade agreement between India and the European Union has finally been locked and formally made official. Initiated in 2022, the India–EU FTA is among the most significant international trade agreements in recent years and is expected to positively impact business ties between India and EU member nations.
Under the new trade agreement, tariffs on imported European cars will be progressively reduced from 110 percent to 10 percent for an annual quota of 250,000 vehicles. This move is expected to significantly lower prices for European cars brought into India as completely built units (CBUs).
The deal further mentions the complete elimination of duties on auto components within five to ten years, a step that should further reduce costs for locally assembled vehicles over the longer term. The agreement has yet to clarify whether electric vehicles, hybrids and internal combustion models will be subject to uniform taxation or differentiated rates based on powertrain type. It also does not currently outline any price-based categories.
At present, fully-imported CBUs priced below $40,000 attract an import duty of 70 percent, while vehicles priced above $70,000 are taxed at 110 percent. In contrast, completely knocked down (CKD) kits imported for local assembly attract a significantly lower Basic Customs Duty of about 16.5 percent.
The tariff reduction is expected to significantly lower the cost of vehicles from luxury brands such as Mercedes-Benz, Audi and BMW. Even performance cars from the likes of Ferrari, Lamborghini, and Porsche are expected to see massive price cuts in the near future.
According to an EY spokesperson, imports of cars under CTH 8703 from the EU currently stand at approximately USD 397 million, compared to USD 7.9 million from Japan and USD 4.8 million from Korea, as per ITC Trade Map data of 2024, highlighting that imports in CBU form from Korea and Japan is lesser as compared to EU. That said, the overall impact on the Indian auto industry is expected to remain limited. Vehicles imported in CKD form continue to attract a significantly lower duty of around 15%, and this route is also widely used by European, Japanese and Korean manufacturers.