India’s automobile industry is set to benefit significantly from the newly signed free trade agreement (FTA) with the United Kingdom, which eliminates an 18 percent duty on Indian vehicle exports to the UK. At the same time, the agreement protects India’s domestic clean mobility market by offering no preferential access to electric and hybrid vehicles manufactured in the UK.
The India-UK Comprehensive Economic and Trade Agreement (CETA), signed on Thursday, opens up the UK market to Indian automakers, while ensuring that India’s transition to clean mobility remains shielded from foreign competition. According to UK government documents, “India shall not provide any out-of-quota preferential customs duty on zero emission vehicles (electric, hybrid or hydrogen fuel vehicles).”
The agreement comes at a time when domestic demand for clean mobility is on the rise. Sales of hybrid vehicles rose by around 12 percent year-on-year to 365,024 units in FY25, while pure electric vehicle (EV) sales increased by 17 percent to nearly 2 million units, according to data from the central government's Vahan portal.
While India has protected its EV market, it has agreed to reduce tariffs on a limited number of high-end internal combustion engine (ICE) vehicles from the UK. Luxury car brands such as Jaguar Land Rover, Aston Martin and Rolls-Royce are expected to benefit.
Under the FTA, India will gradually reduce import duties on British luxury cars to 10 percent within five years, capped initially at 37,000 cars. This quota will decline to 15,000 units by the end of the 15th year. These concessions apply to vehicles with engine capacities above 3,000 cc for petrol and 2,500 cc for diesel, with separate quotas for lower-capacity models.
“The proposed reduction in customs duty to 10 percent on all types of UK-manufactured vehicles—subject to defined quotas and eligibility norms—is expected to make premium cars significantly more accessible to Indian consumers,” said Saurabh Agarwal, partner and automotive tax leader, EY India.
Indian automakers and component makers stand to gain from better access to the UK market. Companies such as Hero MotoCorp and TVS Motor Co.—which owns UK-based Norton Motorcycles—are expected to benefit from reduced trade barriers.
“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 of TVS Supply Chain Solutions.
The pact also supports India’s production-linked incentive scheme for the auto sector, under which electric vehicle manufacturers have invested over ₹25,000 crore. The PLI-Auto scheme aims to bolster domestic manufacturing of clean mobility solutions and auto components.
Indian auto component makers exported goods worth $6.75 billion to Europe in FY25, a portion of which went to the UK. The FTA is expected to further boost this segment.
“The CETA is expected to benefit the Indian auto component sector through enhanced opportunities for exports, streamlined regulatory processes, and improved access 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 liberalised terms of trade,” she added.
Pratik Shah, partner at EY-Parthenon, said the deal marks a strategic milestone: “The agreement reduces import tariffs on UK vehicles from over 100 percent to 10 percent within quota limits, while ensuring 99 percent duty-free access for Indian exports. It sets the stage for deeper supply chain integration and greater job creation.”
India has also agreed to phase down duties on imports of trucks from the UK. The current 44 percent base levy will be reduced to 8.8 percent over 10 years, with an annual quota rising from 2,500 units in the first year to 3,500 units by the 10th year. If imports exceed the quota, a higher tariff—ranging from 41.8 percent in the first year to 22 percent by year 10—will apply.
The India-UK FTA provides the Indian auto sector with both enhanced export opportunities and strategic protection of its nascent EV and clean mobility ecosystem—marking a significant development in the country’s trade and industrial strategy.