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Indian Prime Minister Narendra Modi (centre) poses with European Commission President Ursula von der Leyen (right) and European Council President Antonio Costa before a meeting at Hyderabad Palace in New Delhi on January 27, 2026.
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one landmark trade deal The tie-up between the European Union and India has been hailed as a major breakthrough for Europe’s largest carmakers, even as analysts raise concerns about competition in one of the world’s fastest-growing markets.
The EU and India signed on Tuesday what European Commission President Ursula von der Leyen and Indian Prime Minister Narendra Modi said “The mother of all transactions“.
unresolved protocolThe two sides seek to strengthen ties amid U.S. tensions, including cutting import tariffs on EU-made cars from as high as 110% to 10% under an annual quota of 250,000 vehicles.
It represents the largest opening of India’s previously restricted automotive market to European original equipment manufacturers, with German engineering association VDMA describing it as “a day of celebration for export-oriented mechanical engineering”.
However, affected by this news, the European Stoxx Automobile and Parts Index fell nearly 1%. Volkswagen, BMW and french Renault All discounts during morning trading were approximately 1.3%.
Michael Field, chief equity strategist at Morningstar, said any international trade deal is good news in an increasingly volatile environment.
“Cars are one of the EU’s largest exports to India, which means this deal could provide a boost to the European automotive industry,” Field told CNBC via email.
He added: “The Indian car market is largely dominated by domestic players, which is difficult to disrupt, but it gives European carmakers a chance to compete.”
Field said the deal could also open up a new market for European luxury carmakers such as Germany’s Porsche, with prices that are “more affordable” for the middle class.
‘Much needed oxygen’
European carmakers, which have been grappling with the crisis on multiple fronts in recent months, will receive tariff relief in India that none of Delhi’s other trading partners have received.
To be sure, India is the world’s third-largest passenger car market, and auto industry groups expect tax cuts, especially on small vehicles, to significantly stimulate the country’s market in 2026.
Thilo Brodtmann, executive director of the German Machinery and Equipment Manufacturing Association (VDMA), said the EU-India trade deal will bring a much-needed competitiveness boost to European manufacturers and described the Indian automotive market as one of the fastest growing and most strategically important in the world.
The Mercedes star is the brand symbol of the car manufacturer Mercedes-Benz and rotates on the building of a Mercedes-Benz car dealership.
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“Export-oriented machinery and equipment engineering needs rules-based trade like air to breathe. The free trade agreement between India and the EU brings much-needed oxygen to a world increasingly dominated by trade conflicts,” Brodmann said in a statement.
“The EU has delivered on its promise. With this deal, Europe sends a clear signal that it supports rules-based trade and opposes the law of the jungle,” he added.
‘A boon for European carmakers’
Eugene Hsiao, head of China equity strategy and China automotive at Macquarie Capital, said the agreement appeared to show a greater willingness to open markets and cooperate across regions, noting that the agreement would have a positive impact on both the EU and India.
“We all know the geopolitical events that have happened in the past week or so, and I think if you’re the EU or India, you’re looking to diversify. That’s the first thing, and that’s probably the key to why they’re taking similar actions at this time,” Xiao told CNBC on Tuesday.
“Especially on the automotive side, because automotive is a very big market and India is a growing market, you can see the Europeans are very interested in entering this market. Historically, my understanding is that India has been relatively restrictive, so having this market is a boon for European car manufacturers,” he added.
