India-EU FTA impact on Automobile and Auto components’ sectors

The India–European Union (EU) Free Trade Agreement (FTA) was finalised on 27 January 2026, marking a major step in strengthening economic ties between the two jurisdictions. The agreement aims to reduce tariffs, ease trade barriers, and improve market access for businesses across sectors. It covers trade in goods and services, investment, digital trade, intellectual property, and sustainability commitments, and is expected to support higher exports, stronger supply-chain partnerships, increased investments, and job creation, while enabling EU companies to expand further in India’s growing market including the automotive sector.

Poonam Upadhyay, Director at Crisil Ratings, shares her insights on the potential impact of the India–EU FTA on India’s automotive and auto components sectors.

Automotive

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.

The proposal entails lower duties – from 110% currently to about 40% initially and 10% eventually – on a quota of around 250,000 cars priced above €15,000.

That would give European original equipment manufacturers (OEMs) room to price imported models more competitively, expand their model range and recalibrate launch price points.

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.

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.

The impact on overall volume is likely to remain limited, given the small size of the segments that will see the most impact. 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%.

The mass-market passenger vehicle segment remains largely insulated and highly price sensitive. Nearly 95% of fiscal 2025 volume was priced below Rs 20 lakh, where purchase decisions are driven primarily by affordability and ownership costs.

Even with an initial duty cut to around 40%, imported EU vehicles are likely to remain priced above the core mass segment, limiting their relevance at the lower end. 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.

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

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.

Auto components

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.

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.

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