This report is from this week’s CNBC Inside India newsletter, which brings you timely, in-depth news and market commentary on emerging power. Subscription Here.
Ashita Gupta, founder of a New Delhi-based tech startup, loves her cars. As European luxury cars are likely to drop in price, Gupta, who drives an Audi A6, is considering buying another high-end car.
Spending that much on a second car is “absurd”, he says, but if an Audi R8 or Audi RS4 were “affordable”, it would be worth buying.
On Tuesday, India and the European Union announced the “mother of all deals,” including New Delhi cutting Import duties on European cars will gradually decrease to 10% from currently 70%-110%. This will apply to a quota of 250,000 vehicles per year and cars priced above 15,000 euros ($17,952).
Indian Prime Minister Narendra Modi (C) poses with European Commission President Ursula von der Leyen (R) and European Council President Antonio Costa on January 27, 2026 in New Delhi, India.
Sajjad Hussain | Afp | Getty Images
India has long protected the world’s third-largest auto market by using prohibitive levels of import tariffs to protect domestic car companies, prompting global firms to build local factories.
US President Donald Trump, in fact, has often criticized India for protecting its local auto industry from imports, demanding lower tariffs on American car companies and calling them “very unfair.
Now Brussels has won a lucrative deal for European car companies, outdoing Washington to get New Delhi to abandon its tough stance on car tariffs.
“EU brands now have premium access to the world’s third-largest auto market, while US companies now face a huge toll,” Diwaker Murugan, an auto analyst at Omdia, told CNBC. Omdia estimates that the Indian car market will reach 6 million by 2030, thanks to a young population with high disposable income.
Bright deal, dim prospects?
Nearly 95% of vehicles sold in fiscal 2025 were priced below 2 million rupees ($21,756), according to Crisil, an Indian research and rating agency owned by S&P Global.
According to auto experts, even if the tariffs are reduced, the prices of imported European cars will exceed this range, as local taxes will be added to the final price. Thus, the overall addressable market for European car companies will still be limited.
India’s mass car market is dominated by Maruti Suzuki and Hyundai, which have been manufacturing in India for more than two decades, and local players Tata and Mahindra, with high-volume models priced below Rs 2.5 lakh.
The agreement between India and the EU will “greatly help European car exports to access the market of 4 million passenger cars, which until now has been protected by prohibitively high levels of import tariffs”, said the European Association of Automobile Manufacturers, pointing to restrictions such as “quota restrictions and residual tariffs”.
Europe’s top five luxury brands, Mercedes-Benz, BMW, JLR, Audi and VolvoIn the fiscal year ended March 2025, 49,000 cars were sold in India, according to data from Indian research and rating agency Crisil, owned by S&P Global, bringing total passenger car sales to 4.3 million.
European car companies dominate the luxury segment, but overall their position is “under increasing pressure” as their market share shrinks, said Puneet Gupta, director of technical research at S&P Global Mobility.
He explains that Indian and Korean manufacturers have “aggressively expanded their presence through capacity expansion, frequent product launches and rapid network growth,” while Europeans have been relatively cautious about investment over the past few years.
The free trade agreement, which could take effect later this year, could force European companies to reconsider their Indian business plans as trade barriers ease, Gupta said.
Hardeep Singh Brar, president and CEO of BMW Group India, echoes this sentiment.
FTAs can create opportunities to introduce new and niche products and support deeper localization over time if there is scope for demand,” Brar told CNBC in an email exchange. German automaker BMW Group’s Indian arm produces more than 95% of its vehicles locally, but in 2025 it sold just over 18,000 units. the highest so far.
Local concerns
The potential of this FTA, coupled with evolving consumer preferences, has raised some concerns among Indian auto investors as the move to lower tariffs will significantly impact market leaders as competition in high-margin segments increases.
“The real battleground is the premium SUV segment,” said Omdia’s Murugan, priced above Rs 2.3 crore. “By allowing European brands to place vehicles in this bracket at competitive prices, the deal could create a contrast between the value of the European nameplate and the Indian flagship SUV,” he added.
Some high-end variants of locally produced cars like Mahindra’ Scorpio or Tata Safari are priced around Rs 2.5 lakh and are popular among customers.
After the deal was announced on Tuesday, shares of leading Indian auto companies including Mahindra and Mahindra, Hyundai Motor India, Maruti Suzuki and Tata Motors It decreased from 1.5% to 4%.
According to Citi, local manufacturers see competition “bridging the gap between high-end models from Indian OEMs and entry-level models from (currently imported) EU OEMs”.
But India’s industry leaders and trade bodies have welcomed the trade deal because it still protects most sales.
Anish Shah, Group Chief Executive and Managing Director, Mahindra Group, said the deal was “a big positive for the auto sector” as it would give Indian carmakers duty-free access to markets in Europe and attract European auto companies to invest in India.
While many analysts agree that European auto companies will not be able to reduce the dominance of local automakers anytime soon, even with reduced trade barriers, competition will intensify as consumer preferences change.
Gupta, the founder of the tech startup, says he wants to see more comfortable cars come to India and hopes that after the trade deal, European car companies will produce their latest models in India so that consumers like him can get the latest amenities at “reasonable” prices.
Top TV picks on CNBC
Canadian Energy and Natural Resources Minister Tim Hodgson said the country is trying to diversify its trade relations with India and China, despite negative reactions from the United States.
Ranjit Rath, chairman and managing director of Oil India, said India’s dependence on oil imports was unlikely to drop dramatically, but added that the country was emerging as a global refining hub.
Need to know
The India-US trade agreement is at a very advanced stage. The much-anticipated trade deal between India and the US is “at a very high level advanced India’s Petroleum and Natural Gas Minister Hardeep Singh Puri told CNBC on Tuesday. He said he hoped the deal would be announced “soon.”
India and EU close ‘mother of all deals’. The European Union and India on Tuesday finalized a free trade agreement that will either be withdrawn or withdrawn reduction tariffs on more than 90% of trade between the two. India will reduce tariffs on imported European cars and both sides will create a framework to allow talent mobility.
US SEC seeks to question Gautam Adani on fraud charges. There is the US Securities and Exchange Commission searched for A US court has issued subpoenas to Adani Group executives on bribery and fraud charges. The US regulator said the Indian government had twice refused to issue earlier subpoenas.
Quote of the week
We have always used India as a strong innovation hub… If I take the energy supply chain, there are only two places on the planet where we do basic research with energy players. One is Illinois in the US and the other is Gurgaon in India.
— Ananth Maheswari, President and CEO, Global Regions, Honeywell
In the markets
Indian stocks were flat amid mixed trade in the region after the US Federal Reserve kept interest rates steady. The Awesome 50 The index and the BSE Sensex were little changed at 1pm local time on Thursday and are down more than 3% this year.
India’s 10-year government bond yield rose slightly to 6.716%. The Indian rupee last firmed marginally at 91.965 against the greenback.
— Lee Ying Shan
It’s coming
January 29: Fiscal deficit at the end of December
February 1: The Government of India presents the Union Budget for the financial year 2027
Every weekday, CNBC’s ‘Inside India’ news show brings you news and market commentary on emerging powerhouses and the people behind their growth. Stream the show live on YouTube and watch highlights Here.
SHOW TIME:
USA: sunday-thursday 23:00-0000 ET
Asia: Mon-Fri 11:00-12:00 SIN/HK, 08:30-09:30 India
Europe: Monday-Friday, 05:00-06:00 CET