India and the European Union have unveiled a draft free trade agreement that introduces limited tariffs and phased quotas for car exports and imports, aiming to balance market access and foster local manufacturing, with detailed provisions for electric vehicles and premium brands.
India and the European Union have drawn up a draft free trade agreement that would open a carefully limited route for cars on both sides, with the biggest immediate prize being easier access for Indian exporters and a much larger but still capped window for European brands in India. According to draft details reported on 13 September 2026, the auto annex has now been made public after legal review, although the pact has yet to be signed and remains subject to the completion of domestic approvals in both jurisdictions.
For Indian-made passenger vehicles powered by internal-combustion engines or hybrid systems, the framework would allow exports of up to 250,000 cars under tariff-rate quotas, provided the vehicles are priced at up to 50,000 euros on a cost, insurance and freight basis. The first year would permit 25,000 units at an 8% duty rate, after which the tariff would fall in stages to zero by the fifth year. Shipments beyond the quota would face standard most-favoured-nation duties, preserving a ceiling on the concession.
On the import side, the agreement is even more consequential for European manufacturers. Business Standard reported that India imported 17,191 cars from the European Union in 2025, underscoring how large the proposed first-year quota of 100,000 vehicles would be by comparison. The concession would not apply to cars priced below 15,000 euros, or roughly Rs 16.6 lakh at current rates, while mid-range and higher-end models would face a phased reduction in duties over five years, from as high as 110% to as low as 10%.
The draft also creates a separate annual quota of 75,000 completely knocked down kits, a category that typically supports local assembly rather than fully built imports. Electric vehicles remain tightly managed under the text now in circulation: European EVs would not receive a concessional quota in the first four years, and vehicles priced at 20,000 euros or more would only gain entry from the fifth year. The same four-year wait would apply in reverse to Indian electric vehicles seeking access to Europe, before a quota of 27,500 units opens.
Even so, the deal is unlikely to trigger an immediate price war in Indian showrooms. The agreement is still a framework, not a final commercial launch, and any retail benefit will depend on how companies choose to structure imports and local assembly. Luxury names such as Mercedes-Benz, BMW and Audi already sell in India, but their pricing will hinge on whether they bring in finished cars or assemble them locally. Maruti Suzuki, by contrast, appears well placed to benefit on the export side after shipping more than 447,000 passenger vehicles in financial year 2026, and The Financial Express said on 13 September 2026 that Maruti accounted for 97% of India’s total electric-vehicle exports in the first quarter of financial year 2027. For New Delhi, the broader aim is to protect mass-market makers while nudging European manufacturers towards local production, a balance the Commerce Ministry has described as deliberately phased and development-oriented.
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