India, Jan. 27 -- India and the European Union (EU) have signed a free trade agreement that will gradually reduce the import duty on cars to 10% with an annual quota of 2.5 lakh vehicles.

With a modest production footprint and annual sales still in tens of thousands of cars, European brands have huge room to expand after losing market share in the last decade.

The likes of Volkswagen to Renault and BMW hold less than 3% share of India's car market, according to industry data. The South Asian country's car market is dominated by Maruti Suzuki India Ltd. and homegrown brands Mahindra and Mahindra Ltd. and Tata Motors PV Ltd., which together hold two-thirds.

India has the world's third-largest car industry after the US and China, but its ...