India–EU Free Trade Agreement: What It Means for the Auto Sector
The newly concluded India–European Union Free Trade Agreement (FTA) is poised to significantly transform market access for Indian auto manufacturers and auto component makers. According to a report by the credit rating agency Icra, the pact is expected to reshape competitive dynamics between India and the EU, creating long-term growth opportunities for India’s automotive export sectors.
Under the agreement, Indian auto and component exports will receive better access to European markets, while the trade framework promises to boost participation in global automotive supply chains. The European Union continues to be one of the largest automotive production hubs worldwide, presenting significant export opportunities for Indian suppliers.
Tariff Cuts: A Game Changer for Premium Vehicle Imports
The FTA will dramatically reduce import duties on completely built units (CBUs) from EU countries. Currently, import duties on European vehicles can reach up to 110%, but under the new agreement, these duties are expected to fall to around 10% over time for a fixed annual quota on vehicles priced above €15,000 (approx. ₹13-14 lakh). This move opens up India’s premium vehicle market to European original equipment manufacturers (OEMs) such as BMW, Mercedes, Audi, and Porsche, enabling more competitive pricing in India’s fast-expanding auto market.
However, the report notes that this relaxation in duties will mainly benefit premium internal combustion engine (ICE) vehicles. The mass-market segment of small and mid-sized cars — which constitutes a large portion of India’s domestic auto market — will see limited disruption. Additionally, tariffs on electric vehicles (EVs) will remain unchanged for the first five years of the agreement, giving the domestic EV industry time to expand.
Boosting Competitiveness for Indian Auto Component Makers
One of the most significant outcomes of the India–EU FTA will be better export opportunities for Indian auto component firms. With tariff rationalisation and preferential market access, Indian component manufacturers are likely to become more competitive on pricing and sourcing with European OEMs.
As the FTA lowers trade barriers, Indian suppliers will have improved prospects for integrating into European and global automotive supply chains. This preferential access may help domestic component firms compete more effectively against manufacturers from countries that currently enjoy tariff advantages in European markets.
Expanding Export Potential
At present, automobiles and auto components make up around 3% of India’s exports to the EU, indicating substantial room for growth as trade barriers are gradually eased and sourcing relationships deepen. The improved trade conditions under the FTA could support higher export volumes, especially for specialised component manufacturers and firms that are part of global manufacturing networks.
Conclusion: A Strategic Step for India’s Automotive Sector
Overall, the India–EU FTA represents a strategic milestone for India’s automotive and auto component industries. By improving access to one of the world’s most significant automotive markets and helping Indian firms integrate into global supply chains, the agreement could accelerate export growth and strengthen the competitiveness of India’s industrial base in the years ahead.
