India-UK FTA clears road for British cars, but with speed bumps ahead

FTA phases in tariff cuts for UK car exports, but strict quotas and EV exclusions mean limited gains for British automakers in India's protected market

The recently signed Free Trade Agreement (FTA) between India and the United Kingdom marks a significant breakthrough in bilateral economic ties. While the deal eliminates duties on most Indian exports to the UK, the auto sector, a politically sensitive area for both sides, has been liberalised through a cautious, quota-based tariff reduction scheme spread over two decades.

 

The agreement reduces or eliminates tariffs on 90–99 per cent of goods traded between the two countries. For UK automakers, however, market access to India will be limited by quantity caps and phased tariff cuts, especially on petrol, diesel and electric vehicles. The deal is not yet in force and awaits ratification.

   

Why are automobiles the most protected sector in the FTA?

 

Automobiles have been among the toughest issues to resolve in the India-UK FTA negotiations. At present, India imposes import tariffs above 100 per cent on fully built foreign cars. These tariffs provide high barriers to entry, protecting domestic manufacturers such as Maruti Suzuki, Mahindra, and Tata Motors in a highly price-sensitive market.

 

UK officials and auto manufacturers pushed for steep tariff cuts to boost exports, but Indian negotiators sought long phase-in periods and strict import caps. A sudden influx of foreign vehicles, they argued, could hurt local industry and undermine domestic EV manufacturing goals.

 

How will British petrol, diesel, and EVs enter the Indian market?

 

Under the FTA, tariffs on UK petrol and diesel vehicles will be reduced to 10 per cent by 2031, but only for vehicles imported under a defined quota.

 

For the highest-capacity engine cars, the first-year in-quota duty drops to 30 per cent, falling to 10 per cent by year five. Out-of-quota tariffs will decline more slowly, reaching 50 per cent by year ten. Luxury carmakers like Bentley and Jaguar Land Rover (owned by Tata Motors) will face import duties as high as 30 per cent initially. Lower-end vehicles will be subject to an even steeper 50 per cent duty before tapering to 10 per cent in year five.

 

The number of vehicles qualifying for reduced tariffs is capped. The quota begins at 20,000 vehicles annually, expands to 37,000 by 2031, and then contracts to 15,000 units by 2046.

 

Electric and hybrid vehicles follow a separate path. Only those priced above £40,000 qualify for tariff relief, starting at 4,400 units in 2031 and rising to 22,000 by 2040. EVs below this threshold remain excluded, in a bid to safeguard India’s domestic clean mobility ecosystem.

 

How are British automakers reacting to the agreement?

 

Despite gaining a structured entry into the Indian market, UK automakers have responded with tempered optimism. Industry leaders welcomed the long-term tariff reductions but criticised the slow and complex implementation, according to the Financial Times.

 

Manufacturers must wait until 2031 for the lowest tariff rate, with quotas declining after that. The phased approach, industry executives said, limits price competitiveness in the Indian market during the critical early years of the deal.

 

Jaguar Land Rover may benefit in the longer term, but short-term opportunities are minimal. The British auto industry had lobbied for faster access and broader inclusion of mid-segment and electric models.

 

How has India protected its domestic auto industry?

 

India has maintained robust safeguards for its auto sector — arguably the most protected chapter of the FTA. While the UK gains limited long-term access, India continues to shield its mass-market segment through tariff-linked quotas and price thresholds.

 

There is no major liberalisation for small or affordable EVs — a segment where Indian automakers are investing heavily. These measures are designed to support the domestic industry’s global aspirations.

 

However, Indian auto component manufacturers are expected to benefit from zero-duty access to the UK. Companies like Bharat Forge, Motherson Sumi, and Sundaram Clayton could see export gains, with Indian engineering goods likely to integrate deeper into British supply chains.

 

When will the India-UK FTA come into effect?

 

The FTA will take effect once it is ratified by both parliaments — likely in 2026. From there, a phased implementation plan will govern the roll-out of tariff cuts.

 

The auto sector will follow a detailed timeline, including annual reviews, price-linked import quotas, and a bilateral safeguard mechanism designed to address any future trade disruptions.