Negotiations on a free trade agreement between the European Union and India took almost 20 years. It only became clear shortly before the goal that it was finally becoming concrete. Indian Trade Secretary Rajesh Agrawal declared on Monday that the negotiations had ended and both sides were ready to announce the agreement on Tuesday. Government circles in the capital said India was ready to significantly reduce tariffs on the import of cars, from currently up to 110 percent to 40 percent. Later the rate will even fall to ten percent. The news, apparently deliberately launched as a happy message to Europe’s largest economy and its auto industry, could actually boost sales for German manufacturers. India and the EU want to send a message to Trump. This is also necessary if India is to become Germany’s “partner of choice”, as Chancellor Friedrich Merz (CDU) said during his recent visit to the country. As of today, the world’s most populous nation hardly plays a role in the balance sheets of German car companies. Mercedes delivered 19,000 vehicles in India last year, slightly fewer than in 2024. In China, despite a sharp year-on-year decline of a fifth, the number was still 575,000 in the same period. The Volkswagen Group sold 117,000 cars in India last year. That was an increase of over a third compared to 2024. But compared to Wolfsburg’s largest market, the number still looks modest. VW sold around 2.7 million vehicles in China last year. The differences in size make it clear what Tuesday’s free trade agreement is primarily about: the political message to America that two economic powers are coming together here, whose hitherto most important partner is increasingly becoming an enemy. While Trump has withdrawn his latest tariff threat to the EU, America’s punitive tariffs on Indian imports of a total of 50 percent remain fixed. The agricultural sector is not included in the agreement. A “successful” India makes the world “more stable, more prosperous and safer,” said EU Commission President Ursula von der Leyen on Monday after she watched the military parade alongside Prime Minister Narendra Modi to celebrate Republic Day, on which 76 years ago Constitution of the new Indian state had come into force. The government in New Delhi had already made it clear that it now finally wants to get started and put the country on course for its long-awaited rise to becoming an industrial nation – and spoke of the “mother of all free trade agreements” before the European-Indian summit on Tuesday. Even before the contract is on the table, it can be said that the choice of words is probably too exaggerated. Finally, both sides have clearly excluded the most contentious economic sector, the agricultural sector, from the agreement. The reason for this is simple. Around 150 million Indians are employed in agriculture, which is almost half of the working population. To even appear to be putting the incomes of small farmers at risk if India’s high tariffs on foreign imports of agricultural and dairy products are reduced is tantamount to political suicide in the largest democracy. The latest protest by millions of farmers, among other things, for minimum prices for the harvest, began at the beginning of 2024 and lasted for over a year. Tariff reductions for cars are linked to quotas. However, in other areas too, such as the car industry, the details of the announced market opening turn out to be less positive than expected for Europe’s export economy when you take a second look. The reduction in tariffs will actually only apply to a quota of just 250,000 cars per year with petrol and diesel engines. Because it wants to protect domestic manufacturers like Tata, the tariff reduction does not apply to electric cars. “These restrictions do not allow the trees in India to grow into the sky for German manufacturers,” says consultant Jochen Siebert from Singapore to the F.A.Z. However, the tariff reduction could encourage Mercedes, for example, which has previously focused on the high-priced segment in the country, to offer cheaper models. However, given India’s much lower per capita income, it will probably be another seven to ten years before the Stuttgart-based company sells several hundred thousand vehicles in India like in China. At least BMW country boss Hardeep Singh Brar was hopeful on Monday that the free trade agreement could give momentum to the previously tiny market for luxury cars in India. More on the topic So far, India only accounts for 2.4 percent of the EU’s foreign trade, far behind the USA (17 percent) and China (15 percent). However, Samina Sultan from the German Economic Institute estimates that the trade volume with India could more than double as a result of a free trade agreement. German exports to India increased by almost 40 percent in the first eleven months of last year compared to the period in 2019 – while exports to China fell by 15 percent in the same period.
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