Mumbai: The proposed free trade agreement (FTA) between India and the European Union is expected to significantly reduce import duties on automobiles, including electric vehicles (EV) of the 27-country bloc to 10-15%, potentially triggering a surge in European sales of luxury electric vehicles in India, people familiar with the matter said.
The deal, expected to be announced at the bilateral summit on January 27, is also expected to make India an attractive manufacturing hub for luxury electric vehicles, they said. India currently imposes import duties of around 100% on European automobiles with a landed cost above $40,000 (around ₹37 lakh), which applies to luxury electric vehicles, a nascent category in the country that includes units with a starting price of around ₹1 crore, according to industry executives.
With the India-EU FTA If expected to reduce import duties, European manufacturers of luxury electric vehicles will be able to price their products more competitively in the Indian market.
Protection of local automakers
Economy electric vehicles, a segment dominated by domestic players, will likely remain largely untouched because they are produced locally.
The FTA will likely contain provisions aimed at balancing market access with protection for domestic manufacturers such as Tata Engines and Mahindra & Mahindra, according to people in the know.
Progressive localization requirements and value addition norms for electric vehicle manufacturers should remain in place, ensuring that increased imports do not come at the cost of India’s long-term manufacturing ambitions, they said.
India’s electric vehicle policy requires a national value addition of 25% in the third year of operation and 50% in the fifth year.
“We believe this (India-EU FTA) will benefit both parties, expand trade and lead to exchange of technology and innovation,” said Hardeep Singh Brar, president and CEO, BMW Group India. “By leveraging each other’s strengths, this will boost luxury vehicle consumption in India and improve supply chain integration, which is essential in the current geopolitical environment.”
India’s luxury electric vehicle segment, which currently generates sales of around 2,000 units per year, is seeing stronger electrification momentum than the mass market. Battery electric vehicles represented 10.7% of the powertrain mix in the luxury segment between January and November 2025, compared to 4.5% for mainstream manufacturers, according to data collected by Jato Dynamics.
As internal combustion engines continue to dominate the market overall, luxury brands have relied heavily on hybrids – ranging from mild hybrids to plug-in hybrids – as a gateway to full electrification. Models such as BMW’s iX and i4, Mercedes-Benz’s EQS and EQE sedans, Audi’s Q8 e-tron and Volvo’s XC40 Recharge have found steady demand among affluent Indian buyers looking for a combination of performance, durability and cutting-edge technology. Porsche’s Taycan, despite its premium price of around ₹1.7 crore, continues to attract interest, highlighting the growing acceptance of electric drivetrains in the luxury segment.
MANUFACTURING BASIS
The proposed FTA is also expected to make India a more attractive manufacturing base. “More than 90% of what we sell is made in India, so we do not expect any significant price reduction from the FTA,” said Santosh Iyer, Managing Director and CEO, Mercedes-Benz India. “That said, the deal positions India as a hub for Mercedes-Benz exports to the EU and global markets, thereby increasing production at the Pune plant for international shipments.”
Piyush Arora, Managing Director and CEO, Škoda Auto Volkswagen India, while affirming the group’s focus on quality and competitiveness, said, “Once the final details of the India-EU FTA are available, we will assess its implications.
In addition to tariffs, the FTA is likely to introduce new rules on digital value-added, battery passports and software-based manufacturing, areas where high-end European manufacturers have a head start. “Recognition of digital value addition, which potentially accounts for up to 40% of the value of a software-defined vehicle, could favor brands such as BMW and Volkswagen, while incentivizing them to increase their investments in software and engineering in India,” said Ravi Bhatia, president of Jato Dynamics.
The agreement is expected to establish standards for battery passporting – or digital recording of a battery’s entire lifecycle, from sourcing and manufacturing of raw materials to its use and recycling – and lifecycle data tracking, leading to a reduction in dependence on China while aligning with Europe’s ambitions to become the first climate-neutral continent by 2050.
Together, this data-integrated, software-driven framework could drive 15-25% growth in manufacturing collaboration, adding billions to bilateral trade and solidifying India’s position in a more interconnected and sustainable luxury electric vehicle ecosystem, Bhatia said.
