This would be a real game-changer, said Volker Treier, Head of Foreign Trade at the Association of German Chambers of Commerce and Industry (DIHK), on Monday. "The agreement can help reduce the considerable tariffs and trade barriers that our companies currently face when entering the Indian market." In particular, significant tariff reductions for industrial products would be a desirable economic stimulus for companies in the automotive, mechanical engineering, and chemical sectors.
Unless last-minute issues arise, the agreement is expected to be announced on Tuesday in New Delhi. There, India's Prime Minister Narendra Modi will meet with EU Council President Antonio Costa and Commission President Ursula von der Leyen at the India-EU summit.
Trade expert Treier added that it is important that market access is not hindered again through the back door by bureaucratic regulations. "To ensure that companies can actually benefit from the agreement, the proof of origin for goods must not contain any new documentation requirements. Given the importance of German-Indian trade in services and the many German investments in the country, India should also open up in the areas of services and the tech industry."
The German-Indian trade volume amounted to around 31 billion euros in 2024. Germany exported goods worth 17 billion euros to India, while importing goods worth 14 billion euros from there. Over the past ten years, the trade volume has almost doubled. Around 2,000 German companies are represented in India with subsidiaries, employing more than 500,000 people in total. The most important export goods include machinery, accounting for 26 percent, such as pumps, compressors, shafts, cranks, bearings, gearboxes, and clutches. In addition, chemical products, aircraft, ships, and trains from Germany are in demand. Imports from India mainly consist of pharmaceutical and chemical products as well as clothing.
AUTO TARIFFS TO DROP SIGNIFICANTLY
According to insiders, India intends to drastically reduce tariffs on cars from the European Union. As part of a free trade agreement, duties are expected to fall from up to 110 percent to 40 percent. This would benefit European car manufacturers such as Volkswagen, Mercedes-Benz, and BMW. The Modi government has agreed to immediately lower the tariff rate for a limited number of cars with an import price of more than 15,000 euros. According to an insider, the reduction initially applies to a quota of around 200,000 combustion-engine vehicles per year. Over time, the tariff rate is expected to fall further to ten percent. Electric vehicles will be excluded from tariff reductions for the first five years. This is intended to protect investments by domestic manufacturers such as Mahindra & Mahindra and Tata Motors.
India is the world's third-largest car market after the USA and China, but strongly protects its domestic industry. The agreement, already referred to in India as the "mother of all agreements," could also boost Indian exports of textiles and jewelry.
Currently, European car manufacturers hold a share of less than four percent of the Indian passenger car market, which comprises around 4.4 million vehicles per year. The market is dominated by Japanese manufacturer Suzuki and domestic brands Mahindra and Tata, which together control two-thirds of the market. Given expectations that the Indian market will grow to six million units per year by 2030, some companies are already planning new investments.
Negotiations on a free trade agreement were resumed in 2022 after a nine-year hiatus. They recently gained momentum after US President Donald Trump raised tariffs. The trade volume between India and the EU amounted to 136.5 billion US dollars in the financial year 2024/25, which ended in March. This makes the 27-member EU one of India's largest trading partners.
(Report by Christian Krämer, edited by Sabine Ehrhardt. For inquiries, please contact our newsroom at berlin.newsroom@thomsonreuters.com (for politics and economy) or frankfurt.newsroom@thomsonreuters.com (for companies and markets).)
