“India’s proposal to sharply reduce import tariffs on passenger vehicles originating from the European Union (EU) is likely to have the most visible impact at the top end of the market, rather than on the overall industry volume,” Poonam Upadhyay, Director, Crisil Ratings, said.
The proposal entails lower duties – from 110 per cent currently to about 40 per cent initially and 10 per cent eventually – on a quota of around 250,000 cars priced above 15,000 euros, she pointed out.
That would give European original equipment manufacturers (OEMs) room to price imported models more competitively, expand their model range and recalibrate launch price points, Upadhyay said.
“For Indian OEMs with exposure to this space, however, the change could influence the demand mix considering that while volumes in the premium SUV segment above Rs 20 lakh are modest, margins are higher,” she said.
Competitive intensity at the top end is set to rise. Greater pricing flexibility may support upper-end variants, faster refresh cycles and stronger feature offerings from European brands, lifting benchmarks on technology, safety and overall brand experience. In the milieu, domestic players operating in premium SUVs may need quicker product upgrades and sharper value positioning to defend share, Upadhyay said.
The impact on overall volume is likely to remain limited, given the small size of the segments that will see the most impact, she said.
Luxury sales of the top five brands – Mercedes-Benz, BMW, JLR, Audi and Volvo – stood at about 49,000 units in fiscal 2025, against roughly 4.3 million passenger vehicles sold excluding these brands, thereby keeping luxury penetration at just over 1 per cent, Upadhyay said.
The mass-market passenger vehicle segment remains largely insulated and highly price sensitive. Nearly 95 per cent of fiscal 2025 volume was priced below Rs 20 lakh, where purchase decisions are driven primarily by affordability and ownership costs, she said.
Even with an initial duty cut to around 40 per cent, imported EU vehicles are likely to remain priced above the core mass segment, limiting their relevance at the lower end, Upadhyay said.
While competitive intensity may rise marginally toward the upper end of the Rs 15-20 lakh band, any impact is expected to be limited and concentrated, especially in the early phase, before duties potentially decline further over time, she added.
The impact on electric vehicles will be limited in the near term as these are reportedly excluded from the agreement for five years. This will give domestic OEMs time to scale EV platforms and local supply chains without direct import pressure, Upadhyay said.
Over the medium term, the agreement could also open selective opportunities around technology access, platform sharing and distribution partnerships, particularly where European OEMs look to deepen their India presence without large upfront capital commitments, she added.
Duties on completely built units (CBUs), which are currently as high as around 110 per cent, are expected to reduce to about 10 per cent, subject to an annual quota of approximately 2,50,000 vehicles. In the initial phase, a basic customs duty of around 40 per cent may apply to CBUs imported within the permitted quota, Saurabh Agarwal, Partner & Automotive Tax Leader, EY India, said.
Notably, imports of cars under CTH 8703 from the EU currently stand at approximately USD 397 million, compared to USD 7.9 million from Japan and USD 4.8 million from Korea, as per ITC Trade Map data of 2024, highlighting that imports in CBU form from Korea and Japan is lesser as compared to EU, he pointed out.
“That said, the overall impact on the Indian auto industry is expected to remain limited. Vehicles imported in CKD form continue to attract a significantly lower duty of around 15%, and this route is also widely used by European, Japanese and Korean manufacturers. This model is likely to continue, helping maintain price stability for consumers while supporting local manufacturing, investment and employment in India,” Agarwal said.
Auto component manufacturers are likely to see incremental opportunities from the expansion of European OEM operations in India. As these OEMs scale local assembly and sales to manage costs under the new duty structure, they are expected to increase sourcing from Indian suppliers to improve supply reliability, Upadhyay said.
That can translate into higher domestic orders, stricter quality and compliance requirements and, over time, opportunities for Indian suppliers to be integrated into the global supply chains of these European manufacturers, she added.