European Carmakers Plan Manufacturing Expansion in India Post-FTA

European automobile manufacturers are considering setting up factories in India as the country prepares to implement a free trade agreement (FTA) with the European Union (EU) next year. This development was announced by Union Commerce Minister Piyush Goyal during the launch event of the Bharat Mobility Global Expo held in New Delhi on Tuesday.

The upcoming FTA will grant European carmakers market access in India, initially allowing them to export vehicles under a phased tariff concession system that applies to a limited annual quota. Goyal explained that while the agreement provides an opportunity for European brands to ship cars to India, many companies view this as a chance to gauge consumer interest before committing to local production.

"When we negotiated the FTA, we gave them the opportunity to send their cars to India," Goyal said. "But after engaging with the European auto industry, it became clear they want market access primarily to test which models resonate with Indian consumers." Once demand is established, he added, these manufacturers are expected to launch production facilities in India. This will not only serve the domestic market but also enable exports to other regions worldwide.

Goyal highlighted a shift in strategy for European automakers, who traditionally focused on exports rather than domestic sales in the countries where they manufacture. "They were always export-oriented and did not emphasize domestic demand as much," he noted. "However, with the high costs and regulatory challenges in Europe, competing globally from there is becoming less viable." Setting up plants in India could provide a more competitive base for their global operations.

The India-EU FTA is on track for signing by December, with the pact expected to take effect in the first half of next year. By lowering tariffs progressively, the agreement aims to boost trade in automobiles and other sectors, potentially increasing bilateral commerce significantly.

India has actively pursued several free trade agreements over recent years to diversify its trade partnerships and expand market opportunities for domestic producers. Over the past six years, the country has concluded eight such agreements and is in negotiations with additional economies. According to Goyal, the network of FTAs could eventually help Indian exporters access markets comprising nearly 75 percent of the world's gross domestic product (GDP).

In addition to the EU deal, India is negotiating a bilateral trade agreement with the United States. Talks have been ongoing since March last year, with some progress made in February when the two countries agreed on tariff reductions and increased energy purchases. However, the US Supreme Court later invalidated the legal framework for reciprocal tariffs, causing the negotiations to restart and adjust the terms.

A government official confirmed that a delegation from the US visited New Delhi earlier this month to discuss trade and customs facilitation. Both sides are working to finalize an interim deal soon, which is critical since the US remains India's largest export destination, accounting for around 20 percent of total exports. India also recorded a trade surplus of approximately $34 billion with the US in the 2025-26 fiscal year.

The potential establishment of manufacturing units by European carmakers in India aligns with broader trends of global companies re-evaluating supply chains and production locations. As countries seek to balance cost efficiency with market access, India’s growing automobile market and improving trade relations position it as an attractive destination for investment.

Overall, the upcoming India-EU trade agreement is expected to stimulate industrial growth and create new opportunities in the automotive sector, benefiting manufacturers and consumers alike. For India, this reflects a strategic effort to integrate more deeply into global value chains while supporting its ambition to become a major hub for automobile production.