India and the European Union signed the long-awaited free trade agreement (FTA) on January 27. Despite the sharp headline cuts, especially in the automotive sector, analysts see limited scope for price reductions. Concerns that European imports could significantly disrupt the Indian auto market appear overstated, BNP Paribas stated in its latest report.
BNP Paribas pointed out that the agreement will take at least a year to come into effect, pushing the start of tariff benefits to early 2027
Exposure of Indian auto sector across EU markets
At present, the Indian auto sector has limited exposure to the European market. As of November 2025, the EU accounted for only about 2% of India’s passenger vehicle exports and 1% of two-wheeler exports, with South Africa, Saudi Arabia and Mexico remaining the country’s largest export destinations, the report added.
Limited price impact expected
BNP Paribas estimates that ex-showroom prices of CKD vehicles could fall by around 8%, taking prices to roughly Rs 21 lakh in some cases.
However, the brokerage said most European original equipment manufacturers already operate assembly plants in India and rely on CKD routes rather than importing fully built units. As a result, the benefit from lower duties is likely to be used to offset foreign exchange pressures and improve profitability, rather than being fully passed on to consumers.
Disruption risks seen as overstated
Most European brands, including Renault, Stellantis and Volkswagen, already sell their key models in India, and the FTA is expected to expand product offerings rather than trigger large-scale displacement of domestic players.
Why might this not affect the domestic competition? The report suggests that the Indian passenger vehicle market also remains heavily skewed towards affordability, with most volumes concentrated in models priced below Rs 15 lakh. Therefore, even if the prices are reduced, the report suggests that people might still go for affordable home models.
Export opportunity for Indian automakers
For Indian manufacturers, the agreement offers a potential export opening, particularly for electric vehicles. Maruti Suzuki has already begun exporting its e-Vitara to the EU, while Mahindra & Mahindra is positioning its upcoming Vision series, built on the INGLO and NUIQ platforms, for international markets, the report added.
The report further added that domestic companies may be positively affected by the FTA as it increases the market scope for them. Tata Motors, as per the report, would benefit from exporting its EV portfolio, while Royal Enfield, whose EMEA region accounted for 26% of exports but only 3% of total volume in FY25, can see gains from the increased export push, a byproduct of the agreement.
Steep tariff cuts with quotas
Under the agreement, import duties on cars priced below $40,000 will fall to 10% from 70%, while tariffs on vehicles priced above $40,000 will drop to 10% from 110%, BNP Paribas said, citing media reports.
For vehicles assembled in India using imported parts, or Completely Knocked Down (CKD) units, tariffs will be reduced to 8.25% from 16.5%, with a smaller quota of 75,000 units a year.
The report also added that these benefits aren’t unlimited. There is an annual quota of 2,50,000 units for these reduced tariff imports.
Overall, BNP Paribas expects the India–EU FTA to reshape the auto sector over time rather than deliver an immediate reset, with its effects unfolding gradually as tariff cuts, quotas and export strategies play out.