Local taxation quirks shaped the positioning of Renault’s new Indian-market Duster
India’s new trade deals with the EU and UK are more about good optics than generating big export volumes
India’s famously closed automotive market is now slowly opening up after free trade agreements signed by first the UK and now the European Union promise to lower some of the formidable barriers erected to protect the country’s industry.
It is an important market because last year India sold so many cars it came within 100,000 units of beating Japan – the world’s third-biggest passenger car market. Sales of 4.49 million units, up 5.7% from the year before, established a new record for the country, according to the Society of Indian Automobile Manufacturers (SIAM).
Global car makers have for years sought to gain a foothold in a country seen as the industry’s largest growth opportunity, but exports to India have effectively been blocked by the world’s highest tariffs.
Now the EU and the UK look poised to benefit from deals that have helped lift some of the gloom around the US’s recent sudden lurch towards protectionism.
Renault believes overall car sales in India will reach six million by 2030. “It’s got a huge potential in terms of market,” Bruno Vanel, head of product performance, told journalists at the launch of the India-market Renault Duster.
European automotive industry body ACEA called the EU deal a “landmark moment in global trade relations”, while Shailesh Chandra, head of the International Organization of Motor Vehicle Manufacturers (OICA), described it as “a milestone” for European car manufacturers as well as the Indian automotive industry.
Under the EU’s deal, India has agreed to reduce the punitive tax it places on imported cars from the bloc from 110% to around 35% in the first year of the agreement coming into effect. Eventually they will fall to just 10%, the same rate at which the UK and EU charge imports of cars from India.
The deal mirrors that of the UK’s, agreed last July, which drops tariffs from a similarly high amount to between 30-50%, before eventually hitting 10%. Timings and exact tariffs of both deals will be revealed once they’ve been ratified.
The deals are likely to benefit premium car makers such as Land Rover, BMW, Volvo, Mercedes and Audi the most but would also allow volume European manufacturers like Renault and Volkswagen to flesh out their range beyond smaller, Indian-built models. Tesla, however, remains thwarted, with EV import taxes remaining at the current high level.
The two free trade deals obviously cover far more than just cars, but within the automotive sector, the agreements are so similar that one UK motor industry executive told Autocar he could only conclude that the UK deal was the inspiration for the EU’s.
There are subtle differences, though. Both are covered by an import quota, after which the tariff shoots up again, but the UK’s 37,000 annual quota is better proportionally than the EU’s 250,000 when measured against total manufacturing output, UK industry body the SMMT pointed out. However, the UK’s tariffs outside the quota jump to 60-95%, higher than the EU’s.
The UK’s success in getting electric cars into the trade deal, albeit only from year six, was described by the SMMT in a written submission to the government as a “major achievement, taking into account India’s consistent request to entirely exclude EVs from the scope of the FTA [free trade agreement]”. Similarly, India has opened the door to EU-built EVs, but again only after year five of the deal.
The omission of EVs shows that India’s desire to protect its unique car industry is still very much at the forefront of free trade agreements.
The country is in the very early stages of its electric vehicle journey: EVs took just a 3.6% share of passenger car sales in January. But the government is keen that current electric car sales leader Tata along with local rival Mahindra and localised foreign firms like Maruti Suzuki and MG are left to grow their electric portfolio without competition from the EU, China or anywhere else.
Likewise, the EU deal includes a minimum price of cars exported to the country of €15,000, thus protecting India’s cheap small car specialists.
Plenty of other barriers to exporters remain. India might now be the world’s fourth-richest country – after the US, China and Germany, as measured by gross domestic product (GDP) – after moving ahead of Japan. But in terms of GDP per capita, India is way down in 166th, according to IMF data.
Affordability remains a huge problem, compounded by the fact that the Indian government has long seen car buyers, especially those choosing larger models, as a useful source of tax revenue.
There are signs that this is changing. India’s car market last year was juiced in the last quarter of 2025 after the government overhauled its byzantine VAT system, called the goods and services tax (GST), in a way that was immediately helpful to car buyers.
The whopping 28% GST on cars below four metres in length dropped to 18% and the effect was immediate, with India’s largest car maker, Maruti Suzuki, logging a 22% increase in sales in the last three months of the year.
“It is not common that taxes are reduced by between 5% to 10% in a single stroke,” a clearly delighted Rahul Bharti, Maruti Suzuki’s head of corporate affairs, said on the company’s full-year earnings call.
The seemingly arbitrary tax brackets, however, will ensure that India’s car market remains dominated by tiny city cars after the GST overhaul actually increased purchase tax on cars over four metres in length from 28% to a whopping 40%.
Only EVs are treated differently, with a flat 5% on all electric passenger cars.
Even imports of kits to be assembled in ‘screwdriver’ plants, such as that operated by JLR in Pune, are hit with additional import tax under the GST revision, with semi-knocked-down (SKD) kits moving from 15% to 30% and completely knocked-down kits (CKDs) going from 10% to 15%.
No details have been reavealed yet about what happens to that local kit production when the agreements come into force.
Hurting newly cheaper exports will be the fact that the 40% GST will have to be paid on imported cars as well, on top of the import duty. Precious few EU-built city cars are likely to fall under the 4m rule and cost more than €15,000, to drop them into the 18% zone.
The punitive new VAT system on larger cars means that Renault essentially had no choice but to position its new 4.3m-long made-in-India Duster as a premium vehicle, rather than the budget model its Dacia equivalent is in Europe. The car has been overhauled to include technology such as adaptive cruise control and remote starting to activate the air-con before driving off.
Such are the barriers to entry in the Indian car market that the seemingly dramatic reduction in tariffs isn’t going to move the needle on exports that much. It’s more a signal that India is open to trade.
“The India–EU FTA is less about tariff arithmetic and more about strategic positioning,“ said Nikhil Bhardwaj, regional consultant with automotive data company Jato’s advisory arm. “It gives manufacturers and suppliers clearer, more predictable pathways to invest, scale new technologies and strengthen supply-chain links.”
Currently, fewer than 1% of cars exported from the UK go to India, and it’ll be a while before that changes. “This will be a slow burn, both in terms of the deal and in terms of demand,” said Mike Hawes, head of the SMMT, in a recent journalist briefing. “However, anything that helps with free trade and reduced tariff trade at the moment is to be welcomed.”
