In Issue 2, Peter Paul Pratter explores how the EU-India FTA outshines the US agreement in his monthly column India Rising – Der Wirtschaftsblick, published exclusively on theinder.net. He highlights that while the deal creates a massive growth corridor, European automakers must urgently localize production and pivot to EVs to overcome deep-seated competitive disadvantages.
As the EU and India signed their long awaited Free Trade Agreement (FTA) dubbed as “The Mother of all Trade Deals”, the US appears to have expedited its own agreement with India. While details of the US-India trade deal remain limited, first analyses of the interim framework indicate that the EU-India deal is much broader in scope and structure.
The FTA certainly provides opportunities for European businesses, but for sectors such as automotive, which have faced structural challenges for years, reduced tariffs alone won’t solve deeply entrenched competitive disadvantages.
A Brief Comparison of the EU-India and US-India Trade Agreements
The EU-India FTA was well perceived in both Europe and India and marks the beginning of a pivotal year for the Indo-European partnership, especially in the context of geopolitical developments. While the agreement was communicated in high detail and with full transparency, very limited information has been made available on the US-India trade agreement.
Both agreements operate in fundamentally different contexts. The US-India interim deal is designed as damage control following the Trump administration’s imposition of 50% tariffs on India (25% standard plus 25% related to Russian oil purchases). The EU-India FTA, by contrast, builds a growth corridor from a relatively neutral trading baseline. Economic impacts are therefore expected to differ widely.
According to an analysis by the Kiel Institute of the World Economy, the interim deal mitigates but doesn’t eliminate the damage from US tariffs. Under the current 50% tariff regime, India’s GDP faces an impact of -1.64%. The interim agreement’s tariff reduction scheme would improve this to -0.88%, still a net negative compared to pre-tariff baselines, but an improvement from the status quo. In contrast, Indian exports under the current tariff environment are projected to be 22-26% lower than they would be without these trade barriers.
The US certainly follows long-term interests in the region, and US businesses seem to think so too if we consider substantial investments in India’s infrastructure and technology ecosystems. But the lack of information weeks after the announcement, and the announcement itself shortly after the EU-India FTA generated headlines around the globe, certainly raises questions on the actual status of negotiations.
On the other hand, the EU-India FTA provides clear added value for both sides with positive increases in exports and GDP. The GDP is expected to rise for both and with trade up by +41% for India and +65% for the EU, all on top of agreeing on deeper ties in defence, research and development, and other strategic areas.
Why Reduced Tariffs Alone Won’t Help the Automotive Industry
India is the third largest automotive market, with 4.4 million vehicles per year and expected to reach 6 million vehicles by 2030, growing by 10-12% year-over-year. The market is highly concentrated in terms of market share, with domestic and East Asian players dominating. Volkswagen holds only a 1% market share, and all European manufacturers combined account for a meager 3%.
While the EU-India FTA offers clear improvements for trade in the automotive sector with tariffs for EU exports to India being sequentially reduced from 110% to 10% over the coming years (with a quota of 250,000 cars), not all market players will benefit equally. Premium brands such as Mercedes-Benz or BMW with limited to no production capacity in India will benefit due to smaller target markets, limited competition, and lower prices compared to today, but volume players such as Volkswagen or Renault will continue to struggle.
India’s automotive market is highly competitive, and domestic and East Asian players have not only better understood the market, but continue to invest substantial amounts in India to defend market share and even support their global supply chains. This leads to clear pricing advantages, and improved margins will eventually help them compete in the homemarket of European car makers as well.
But another group in the ecosystem will most likely benefit the most.
Well-Positioned Automotive Suppliers
Success in this highly competitive, price-sensitive market requires local production, deep market understanding, and long-term commitment, exactly what Indian and Asian competitors have built over decades. And so did automotive suppliers such as ZF Group or Schaeffler.
ZF operates 19 production sites in India and targets local sourcing to quadruple to EUR 2.8 billion over the coming years. Schaeffler operates five manufacturing sites as well as three R&D centers. A strategy European OEMs should consider as well when re-evaluating global supply chain strategies and India’s role in those, given the clarity the structured EU-India FTA provides.
However, competition is certainly increasing, especially for electric vehicles (EV) and respective supply chains. Vietnam’s Vinfast recently announced a USD 2 billion investment in Tamil Nadu and expects to produce 50,000 EVs annually and localise its supply chains. This could eventually increase competition for suppliers as well.
Conclusion
The EU-India FTA is a door opener, but European businesses will need to increase focus and integrate India into their supply chains to be successful. For automotive suppliers, this means integrating India into their global supply chains, leveraging lower production costs, and building the components that will power India’s automotive future—regardless of which brand name appears on the badge. The FTA provides the regulatory stability and tariff predictability to make those investments confidently.
For European OEMs, the agreement offers an opportunity to compete more effectively in a market where they’re already years behind. However, without addressing the fundamental structural challenges, local production, market-specific product development, and long-term strategic commitment, tariff reductions alone will do little to change their fortunes.
Further information: India Rising
Editor’s note: Peter Paul Pratter is a business and real estate strategist and expert, founder of the „India Rising“ platform and since 2026 a columnist for theinder.net (press release – in German).