EU trade deal may decide if global EV giants import or make in India

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• India and EU near a major trade deal that could boost India's EV market
• Lower import duties may attract European EV makers to India
• Government may revise EV manufacturing scheme after trade pact clarity

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India’s push to attract global electric car makers could gain momentum if it manages to seal a long-pending trade agreement with the European Union (EU), probably as early as next week.

The proposed free trade agreement (FTA) will decide if global automakers enter the Indian market through imports or commit upfront to manufacturing, industry executives have said.

Speaking at the World Economic Forum in Davos on January 20, European Commission president Ursula von der Leyen said India and the EU were “on the cusp of a historic trade agreement”.

Describing it as the “mother of all deals”, she said the pact could create a market of around two billion people and account for nearly a quarter of global GDP.

India's EV ecosystem to get a boost

EU is home to some of the world’s largest automobile exporters and premium electric vehicle manufacturers, with Germany-based automakers dominating the global premium and mid-segment EV market and closely tracking India as a long-term growth opportunity.

European Commission and Eurostat trade data show that automobiles are a major export category for the 27-nation bloc, with exported $180 billion worth of cars in 2024.

EU vehicle exports to India were estimated at only about $330 million, reflecting the limited presence of European brands due to steep import duties that can go up to 100 percent or more on fully built cars.

EV manufacturing scheme hangs on EU trade deal

The outcome of the India–EU trade negotiations will also decide the fate of the government’s Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI), which was introduced to attract global EV makers by offering lower import duties in return for investment and localisation commitments.

Automakers could import a limited number of electric cars at a reduced 15 percent customs duty, provided they committed to setting up manufacturing facilities in India and met phased localisation targets.

The application window was open till October but didn’t get any applicant, prompting the government to not extend it.

Automakers held back awaiting clarity on the tariff framework under the India–EU trade agreement, which could potentially offer similar duty concessions without binding manufacturing conditions, industry executives said.

“Any reduction in duties under the India–EU trade pact could materially change how European EV makers approach India. If the trade deal offers import duties closer to the 15 percent level that were offered under the government’s scheme, companies may opt for an import-led entry rather than commit early to manufacturing, making the EU talks more consequential for the EV sector than India’s other trade negotiations,” an industry executive said on condition of anonymity.

EV scheme may be reworked

The government may revisit the EV manufacturing scheme once there is clarity on the trade agreement, heavy industries ministry officials said.

“The scheme was framed keeping India’s manufacturing priorities in mind, but its design will have to align with India’s trade commitments,” a government official said. “Any revision would depend on how tariffs on cars are finally structured under the trade pact with the EU.”

The India-EU FTA is expected to be signed on January 27, with EU Commission president Ursula von der Leyen and European Council president António Costa  in Delhi as the chief guests at the Republic Day parade on January 26.