EU-India trade deal falls short of car industry goals

 

EU-India trade deal falls short of car industry goals

 

While the deal lowers car tariffs, they are still too high for most Indians to be able to afford a European car.

 

January 27, 2026 8:27 pm CET

By Jordyn Dahl

https://www.politico.eu/article/eu-india-trade-deal-car-industry-goal/

 

European automakers are finally getting access to the Indian market through the free trade agreement signed Tuesday, but the EU-India deal comes with strings that will continue to limit exports.

 

Until now, EU car suppliers had been throttled by a prohibitive 110 percent Indian tariff that put their cars out of reach to all but the most affluent buyers.

 

Thanks to the deal, automakers can now export 100,000 combustion engine vehicles and pay a 40 percent tariff.

 

The bigger prize comes later, when the EU will be able to send 250,000 cars to India with only a 10 percent tariff, but that arrangement won’t be in place until the deal is fully implemented in a decade or longer.

 

All of that falls far short of the car industry's hopes to grab a big slice of India's fast-growing car market.

 

“It certainly could have been better,” said Jonathan O'Riordan, international trade director for EU car lobby ACEA. “These restrictions are not ideal, but still, we will be supportive because it gives us the potential to grow our market there.”

 

Even the European Commission admitted the deal does not grant automakers as much access as the EU wants.

 

“On cars, we have not reached our initial ambition,” said an EU official,  briefing reporters on the condition of anonymity as is customary in Brussels. “The EU has had to settle for less than what it was hoping to obtain, and so we’ve agreed to some modest outcomes in certain areas.”

 

The trade agreement is the culmination of nearly 20 years of discussions, but U.S. President Donald Trump's trade war and an influx of cheap goods from China pushed both sides to sign on the dotted line.

 

The trade deal had to finesse the very different visions of India and the European Commission, especially when it comes to cars.

 

European automakers are looking for new markets to sell into as the continent's factories reduce capacity and lay off workers, and they're dreaming of a repeat of their experience in China decades ago — when the fast-growing market made them years of profits.

 

But the initial agreement will do little to change their fortunes. While a 40 percent tariff is a significant decrease from the original 110 percent, it is still too high for the average Indian consumer with considerably less buying power, said Pedro Pacheco, an auto analyst at consulting firm Gartner.

 

Although EU carmakers see India as another potential China, India has ambitions to copy China's rise and become an industrial powerhouse — which means focusing on exports not imports.

 

Under the new trade agreement, India can export 625,000 vehicles to the EU.

 

The justification for the higher figure is that the EU’s car market is bigger. In pure terms, this is true, with sales across the EU measuring over 10 million vehicles last year compared to 4 million in India.

 

But sales are stagnating in the EU, while India is expected to continue growing as its economy develops.

 

The deal also comes as European automakers look to diversify their supply chains and rely less on China for manufacturing. But China’s appeal — low costs and efficient manufacturing hubs — also applies to India if more foreign carmakers set up shop there and transfer technology.

 

“That’s obviously good for India and good for the automakers that can sell cars in Europe at lower costs — but not necessarily good for European factories,” said Pacheco. “It makes the problem even worse.”

 

While he cautioned that India will not turn into an exporting powerhouse this decade, that could become a reality around the time the trade deal is fully implemented and auto tariffs are reduced on both sides to 10 percent.

 

“Beyond this decade, I would say why not?” he said of India’s prospects of realizing its manufacturing potential.

 

That means European carmakers could be facing a second Asian juggernaut penetrating their home market.