India, the world’s third-largest auto market by sales, is set to cut import duties on combustion engine vehicles from the current 70% and 110% to 40% for around 200,000 cars a year. This is New Delhi’s most important step towards opening up its highly protected auto sector. The final quota could still change before its implementation.
The government has agreed to immediately reduce the tax on a limited number of cars from the EU whose import price exceeds 15,000 euros (₹16,26,420 or $17,743), sources told Reuters news agency. This rate will be further lowered to 10% over time, facilitating access to the Indian market for European car manufacturers such as Volkswagen, Renault, Stellantis, Mercedes-Benz and BMW.
These companies, despite some local production, have experienced limited growth due to the current regime of high customs duties.
Currently, European manufacturers hold less than 4% of the annual Indian automobile market of 4.4 million units, dominated by Japanese and Indian companies. With the market expected to reach 6 million units by 2030, global automakers are reassessing their strategies in anticipation of regulatory changes and expansion.
Some companies are preparing new investment plans to capitalize on expected growth. The government’s approach also encourages foreign automakers to test more models in India before expanding local production.
Negotiations on these pricing adjustments are ongoing, with final details still to be confirmed. The changes are expected to be included in an upcoming trade deal, “after which both sides will finalize the details and ratify what is being called ‘the mother of all deals’.”
The move follows growing international criticism of India’s high tariffs, with industry leaders like Tesla’s Elon Musk pushing for liberalization. By reducing import taxes, the government aims to attract a wider range of vehicles and new investment from global manufacturers. However, battery electric vehicles will not benefit from the duty cuts for the first five years, a move aimed at protecting domestic investments by Mahindra & Mahindra and Tata Motors.
After five years, electric vehicles will become eligible for similar import duty reductions. This phased approach is designed to support the local electric vehicle sector before opening it up to greater foreign competition, reflecting a carefully managed policy shift.
Lower import taxes will likely allow automakers to offer imported models at more competitive prices and expand their portfolio before considering developing local manufacturing. As one source explains, “they added that this would facilitate access to the Indian market for European car manufacturers such as Volkswagen, Mercedes-Benz and BMW.”
