Commerce Ministry sources: FTA to encourage EU’s OEMs to set up assembly lines in India

Commerce Ministry sources have indicated that the terms of the Free Trade Agreement (FTA) between India and the European Union (EU) will boost Make in India, with liberalized CKD imports encouraging EU OEMs to set up local assembly lines. Sources stated that the move will serve as a stepping stone, moving foreign OEMs from “importing” to “assembling” and eventually to “full localization” by building local supply chains, and expressed hope that high-end manufacturing processes, quality standards, and advanced R&D practices will move into the Indian ecosystem.

Explaining that liberalizing the auto sector and CKD imports will benefit consumers by lowering vehicle prices through reduced import duties and expanding choice with faster access to global models, sources said the move will also ensure higher safety and tech standards while lowering maintenance costs due to better local availability of spare parts.

Describing India’s commitments under the FTA as calibrated, phased, and a development-oriented quota-based liberalization strategy, sources pointed out that up to a total annual quota of 1.6 lakh ICE cars and 90,000 EVs has been provided at a reduced tariff-graded structure for both in-quota and out-of-quota tariffs. A quota on CKD for 75,000 ICE vehicles with an in-quota duty reduction from 16.5% to 8.25% has been provided, with most quotas on large engine-size ICE vehicles and high-price-range EVs, while protecting sensitive segments of India’s automotive industry (small engine-capacity ICE vehicles and mid- and low-price-range EVs). Sources added that 90% of the Indian automobile market is below ₹20 lakh.

EU’s offer on CBUs is 2.5 times (6.25 lakh units) that of India’s offer. The EU will offer complete liberalization on CKD for ICE/hybrids and BEVs. Commerce Ministry sources expressed hope that once EU OEMs have a sense of the Indian market, they may “Make in India” due to lower shipping costs and the quality of auto parts available, adding that after-sales service and spare parts networks are equally important for auto companies, which look at pan-India presence to introduce any models. Giving an example of Mercedes-Benz value-adding 40% of inputs locally for the cars it sells in India, sources pointed out that the EU can sell from India to the rest of the world.

Responding to concerns about the possibility of dumping from China, sources assured that India reserves the right to give quotas to traditional, existing suppliers in the EU instead of those who do not manufacture in the EU. While sources noted that there is some Chinese ownership among EU suppliers, they assured that India reserves the right to take measures to ensure dumping does not take place.

India and the European Union (EU) have announced the successful conclusion of talks for a Free Trade Agreement (FTA). The formal deal signing will take place after legal scrubbing, which is likely to take six months, and the trade pact is expected to come into force in 2027.

In a big opportunity for automobile companies across the EU, tariffs are set to drop on non-EV cars whose retail consumer price in India is above ₹25 lakh. The Commerce Ministry termed the actual threshold as 15,000 Euros (around ₹15 lakh) as the landing price of EU-made cars on Indian ports, which will then experience price additions through taxes, registration, 28% or 40% GST, insurance, freight charges, and logistics.

Once the FTA is implemented, the duty on imports of such cars made in the EU is set to fall to between 30% and 35%, from between 66% and 110% currently. The duty concessions on automobile imports into India will be based on quotas set to rise over time, with segmented market access for EU exports of ICE vehicles, EVs, and heavy vehicles. India’s Commerce Ministry said that in-quota duties will be cut over five years and will eventually fall to 10%, whereas Indian cars will get duty-free access to the EU market.

The move is likely to benefit European car makers like BMW, Mercedes-Benz, Volkswagen, Maserati, Ferrari, Lamborghini, Bugatti, Renault, and many other EU-based automobile companies targeting the ₹25 lakh-plus car market in India. Several auto companies import premium luxury cars as completely built units (CBU), while many assemble their luxury models in India. The EU’s market size for cars is around 10 million, while India’s market size is around 5 million.

Explaining the reason behind the threshold, India’s Commerce Ministry said sensitivities from both sides were considered, hence no out-of-quota duty reduction will be given. Stating that the EU is not targeting India’s largest market segment of cars costing between ₹10–15 lakh, which is largely purchased by the aspiring middle class, the Commerce Ministry highlighted strong interest among EU car manufacturers in India’s premium car market.

The Commerce Ministry said that India is welcoming EU car manufacturers to set up operations in India and integrate supply chains, a move aimed at generating jobs in both economies, enabling technology transfer, and expanding variety for the consumer manufacturing ecosystem.

The Commerce Ministry added that India’s export quota for cars will be 2.5 times that of the EU. On EVs, import quotas will come into force from the fifth year of the FTA’s implementation, which the Commerce Ministry described as a calibrated move aimed at protecting the growing Indian EV ecosystem.