EU Commission President Ms. Ursula (left) with Indian PM Narendra Modi (right). Credit: Prime Minister’s Office (India) / Wikimedia Commons
India plans to reduce import tariffs on European cars to 40% as part of a long-awaited trade deal with the European Union (EU), a move seen as a major shift in its traditionally protectionist trade policies.
The deal, expected to be finalized during a high-level summit on January 27, is central to advancing India-EU economic ties while both sides seek stable trade alternatives amid growing tensions with the United States under President Donald Trump.
Officials say the tariff cuts on automobiles, wine and spirits will be implemented gradually, following a phased approach used in India’s recent deals with countries such as the United Kingdom. However, agriculture and dairy—domestically sensitive sectors—will be shielded from major concessions.
Strategic timing as India and the EU navigate global trade shifts
The agreement comes at a critical time for both India and the EU. India faces ongoing friction with Washington over steep U.S. tariffs, while the EU is aiming to reduce its economic reliance on China, which it increasingly views as an unpredictable trade partner.
Economist Intelligence Unit analyst Sumedha Dasgupta said both parties are motivated by the need to secure reliable partners in an uncertain global landscape.
🚨 JUST IN: INDIA to cut car import tariffs from 110% → 40% under an EU trade deal.
Applies to select cars priced above €15,000, with tariffs set to fall further to 10% over time.
Big shift in India’s trade stance 🇮🇳🇪🇺 pic.twitter.com/rTIF6inmnk
— Wise Advice (@wiseadvicesumit) January 25, 2026
The trade pact would also reinstate India’s access to the Generalised System of Preferences, which allowed Indian goods duty-free entry into the EU market before the benefits were withdrawn in 2023.
Ajay Srivastava of the Global Trade Research Initiative said that the loss of GSP reduced the competitiveness of Indian exports. He noted the new deal would lower duties on key products like garments, pharmaceuticals and steel, while helping Indian firms manage the impact of U.S. tariff hikes.
India-EU deal aims to restore market access and boost trade
European Commission President Ursula von der Leyen emphasized the scale of the partnership in a speech at Davos, stating that a combined EU-India market would cover two billion people and represent a quarter of global GDP. The European Union is already India’s largest trading bloc, with trade totaling over $137 billion.
Despite progress, key hurdles remain. The European Union is pushing for stricter patent protections and improved data security, while India has raised concerns over the EU’s new Carbon Border Adjustment Mechanism.
Srivastava warned that the carbon tax acts as a de facto tariff on Indian exports, particularly affecting small manufacturers who struggle with high compliance costs.
Geopolitical signals and long-term strategic goals
Chietigj Bajpaee from Chatham House pointed out that India often moves sensitive issues to later negotiation rounds, giving the deal symbolic as well as economic importance.
Alex Capri of the National University of Singapore said the agreement could help both parties reduce dependence on trade relationships prone to political shifts, including with the United States and China. He noted that recent political friction between India and the U.S. has made European leaders more open to finalizing the agreement.
The deal would be India’s ninth free trade agreement in four years and follows EU pacts with Japan, South Korea, Vietnam and the Mercosur bloc.
