Twin wins for Indian auto sector in free-trade pact with UK

New Delhi: India’s automakers set to gain access to the UK market as the free-trade pact between the two nations removes 18% duty on exports to the European nation.

The India-UK Comprehensive Economic and Trade Agreement (CETA) also protects the domestic clean mobility market for electric and hybrid vehicles by offering no concessions to the UK. “India shall not provide any out-of-quota preferential customs duty on zero emission vehicles (electric, hybrid or hydrogen fuel vehicles),” the trade documents by the UK government said.

Protecting India’s clean mobility manufacturing is crucial as demand for electric and hybrid vehicles rises. While hybrid vehicle sales rose about 12% year-on-year to 365,024 in FY25, pure electric vehicle (EV) sales rose 17% to 1,967,313 units, showed data from the central government’s Vahan portal.

However, concessions offered by India, the world’s third-largest auto market by sales, will make luxury car imports from the UK cheaper for Indian consumers. Models from companies including Tata Group-owned Jaguar Land Rover, Aston Martin, and Rolls-Royce can get cheaper in India, which saw 51,000 luxury car sales in FY25.

Indian Prime Minister Narendra Modi signed the historic bilateral deal in the UK on Thursday for goods and services trade between the two nations. The pact, which cemented concessions in trade by both nations, laid out a plan for gradually reducing import duties on various products for at least 10 years.

For some goods such as UK-made fossil fuel cars and high-end hybrid, electric, and hydrogen vehicles, the agreement lays out a 15-year plan of gradual duty reduction.

As per the CETA, India has agreed to gradually reduce tariffs on British luxury cars, with a maximum 37,000 cars seeing base tariffs at 10% in the fifth year after the agreement. From thereon, the number of cars allowed at this rate would reduce eventually to 15,000 at the end of 15th year.

“The proposed reduction in customs duty to 10% on all type of UK-manufactured vehicles over a period 10 years for EVs and five years for other cars—subject to defined quotas and eligibility norms—are expected to make premium cars significantly more accessible to Indian consumers,” said Saurabh Agarwal, partner and automotive tax leader, EY India.

India has agreed to relax the tariffs on a specific quota each year, going up to 19,000 in the fifth year and then gradually coming down to 7,500 cars. This will be applicable to petrol cars above 3,000 cc engines and diesel cars of 2,500 cc. Different quotas have been announced for 1,500 cc to 2,500 cc level and up to 1,500 cc. Overall, 37,000 internal combustion engine (ICE) passenger cars will be allowed by the government.

Indian companies that stand to benefit include TVS Motor Co., which has a UK subsidiary, Norton Motorcycles; and Hero MotoCorp Ltd, which plans to enter the UK market in the second half of the current financial year.

“As a company with a strong presence in both India and the UK, we at TVS Supply Chain Solutions see this FTA as a strategic enabler. It will help streamline trade flows, reduce operational friction, and accelerate our ability to deliver cost-effective, agile solutions to global customers,” said R. Dinesh, chairman at the company.

The FTA will protect the interests of Indian automakers and component manufacturers that rely on schemes such as the ₹25,938 crore production-linked incentives for automobiles and automotive components (PLI-Auto). Indian electric vehicle makers, seeking benefits under the PLI-Auto scheme, have invested over ₹25,000 crore in capital.

Boost for auto parts makers

Component makers are also expecting a boost as their exports will get a relief in the UK. In FY25, auto component players exported $6.75 billion worth of goods to Europe, a part of which goes to the UK.

“The CETA is expected to benefit the Indian auto component sector through enhanced opportunities for exports, streamlined regulatory processes, particularly in key areas such as electric mobility, precision engineering, and lightweight materials,” said Shraddha Suri Marwah, president of the Automotive Component Manufacturers Association of India (ACMA).

“Indian MSMEs, which form the backbone of our industry, stand to gain from the liberalized terms of trade and improved access to UK markets.”

Experts said the India-UK CETA cemented a clear path for bilateral trade in the auto sector, with clear benefits outlined for Indian exports.

“The India-UK free-trade agreement is a strategic milestone for the automotive sector, reducing import tariffs on UK vehicles from over 100% to 10% within quota limits, while ensuring 99% duty-free access for Indian exports,” said Pratik Shah, partner, EY-Parthenon.

“With a growing base of auto component & vehicle exports from India, the agreement sets the stage for stronger bilateral trade, deeper supply chain integration, and increased jobs and investment flows,” Shah said.

But there were still some challenges related to carbon taxation, and protecting local manufacturing was a key outcome of the deal. “While there are few concerns around backdoor Chinese imports and UK’s carbon border adjustment mechanism (CBAM) levies, long-term success hinges on balancing collaboration with protecting local innovation,” said Shah.

India has also agreed to gradually reduce the levy on importing trucks from the UK from 37% in the first year to 8.8% by the 10th year of the agreement. The earlier base levy for trucks was 44%. This agreement comes with an annual quota ranging from 2,500 completely built-up units in the first year to 3,500 units for the 10th year onwards.

In case more trucks are imported from the UK than the annual quota for a particular year, there will be a higher levy ranging from 41.8% in the first year to 22% for the 10th year onwards.