European carmakers will get concessional access to the Indian market for up to 100,000 internal combustion engine (ICE) and hybrid cars in the first year of the India-European Union (EU) free trade agreement (FTA), which is nearly six times the approximately 17,200 cars India imported from the bloc in 2025.

This would intensify competition for domestic automakers even as the deal opens a much larger export window for companies such as Maruti Suzuki, Tata Motors and Mahindra & Mahindra (M&M).

India's quota for European ICE and non-plug-in hybrid cars will rise to 160,000 units by Year 10, with in-quota duties falling to 10% by Year 5. In return, the EU will give Indian-origin ICE and hybrid cars priced up to EUR 50,000 (US$ 5.5 million) a quota of 250,000 units in the first year, rising to 400,000 by Year 10, with the tariff falling to zero by Year 5.

The quota is not a ceiling on European car imports: Vehicles can continue to enter India beyond it at the applicable out-of-quota duty, which also declines over time.

India can also cap a single model at 15% of the aggregate passenger car completely-built unit (CBU) quota, subject to a maximum of 25,000 units a year.

The competitive impact will, however, be uneven. India has kept ICE and hybrid cars priced below EUR 15,000 outside the concessions, protecting the mass-market segment.

European electric vehicles (EVs) will get no concessional access for the first four years, with concessions beginning in Year 5 only for vehicles priced at EUR 20,000 or more.

For European luxury carmakers, the FTA could improve access to imported models without fundamentally changing their localisation strategies.

Mercedes-Benz India, where more than 90% of sales come from locally-made models and only around 5% from CBU imports from the EU, said it does not foresee any price reduction because of the FTA in the foreseeable future.

Instead, Mercedes-Benz sees an opportunity to secure higher allocations of imported top-end models for India. "The FTA would surely give us scope of higher allocations for the Indian market, hence more customers will benefit from higher access to our top-end vehicles, compared to the earlier period," said Santosh Iyer, managing director (MD) and chief executive officer (CEO), Mercedes-Benz India.

The company has been manufacturing in India for 30 years and has progressively scaled up local production, he said.

BMW Group India sees a somewhat broader opportunity for its imported portfolio. President and CEO Hardeep Singh Brar said the FTA does not fundamentally change BMW's balanced mix of locally produced models and CBUs, but "certainly makes the CBU business more viable" and gives the company greater flexibility in shaping its portfolio.

High-performance and niche models, including parts of the M portfolio, could benefit, and BMW may consider products for India that were not viable earlier, he said.

Brar, however, said localisation would remain the preferred route wherever volumes justified it. BMW recently launched three locally-produced models - the MINI Countryman C, BMW i5 and BMW i7. "We see the FTA and localisation as complementary and not competing strategies," he said.

The agreement also offers a lower-duty route for European manufacturers assembling cars in India. The quota for ICE and hybrid completely knocked-down (CKD) vehicles is 75,000 annually during the first five years, declining to 50,000 from Year 10. The in-quota duty falls from 13.75% in Year 1 to 8.25% from Year 3.

For Indian automakers, the reciprocal concessions create a larger potential export opportunity. Maruti Suzuki is particularly well placed to tap this, given its existing export scale and presence in Europe. It exported a record 447,774 vehicles in FY26 and already established India as the global production hub for the e-Vitara. The company shipped more than 25,000 units of the electric SUV to 44 countries during FY26, including European markets.

The immediate FTA tariff benefit in Europe, however, is greater for qualifying India-made ICE and hybrid vehicles because preferential access for Indian EVs is also phased in later. For Tata Motors and M&M, the agreement creates a potential new export window for their India-made vehicles.

The four-year delay in concessional access to European EVs also gives the two domestic EV makers more time to scale their home market before facing lower-duty European competition.

A New Delhi-based think tank said the opening was significant compared with existing trade flows. It also noted that tariffs on imports outside the quota will progressively decline, widening access to the Indian market beyond the preferential quota over time.

The FTA could also strengthen India's role as an export manufacturing base for global carmakers such as Hyundai, Kia, Toyota, Honda, Renault and Nissan. This comes even as vehicles seeking preferential access to Europe would have to meet the agreement's rules-of-origin requirements.