India to cut EU car tariffs to 40% as free trade deal nears: report

India is preparing to sharply reduce import tariffs on cars from the European Union, marking the biggest opening yet of its tightly protected automobile market as New Delhi and Brussels move closer to sealing a long-awaited free trade agreement.

The deal could be announced as early as Tuesday, according to sources cited by Reuters.

Under the proposed arrangement, India plans to cut peak import duties on EU-made cars to 40% from current levels of as high as 110%.

The move would represent a significant shift in trade policy for the world’s third-largest car market and could reshape access for European automakers that have long criticised India’s tariff regime.

Sharp tariff cuts under proposed EU trade pact

Prime Minister Narendra Modi’s government has agreed to immediately lower import duties on a limited number of cars from the 27-nation EU bloc that have an import price above 15,000 euros ($17,739), two sources briefed on the talks told Reuters.

Over time, those duties would be reduced further to as little as 10%, the sources said.

The initial tariff reduction would apply to about 200,000 internal combustion engine cars annually, although that quota could still be adjusted before the final agreement is signed.

Battery electric vehicles will be excluded from the duty cuts for the first five years to protect domestic investments, with similar reductions expected to apply to EVs later.

India currently levies tariffs of between 70% and 110% on fully built imported cars, a policy that has drawn repeated criticism from global auto executives, including Elon Musk.

The proposed cuts would be India’s most aggressive move yet to liberalise the sector.

Boost for European automakers in a protected market

Lower import taxes would be a boost for European carmakers such as Volkswagen, Mercedes-Benz, and BMW, as well as manufacturers including Renault and Stellantis.

Many of these companies already manufacture locally in India but have struggled to scale up due to high import barriers.

Lower tariffs would allow carmakers to sell imported vehicles at more competitive prices and test the market with a wider range of models before committing to further local production, one of the sources said.

European brands currently account for less than 4% of India’s roughly 4.4 million-unit annual car market.

The sector is dominated by Suzuki Motor, along with domestic manufacturers Mahindra & Mahindra and Tata Motors, which together control about two-thirds of sales.

With India’s car market projected to expand to around 6 million units a year by 2030, several European automakers are lining up new investments.

Renault is revamping its India strategy as it looks for growth beyond Europe, while Volkswagen Group is finalising its next phase of investment through its Skoda brand.

‘Mother of all deals’ and wider trade implications

India and the EU are expected to announce the conclusion of negotiations for the comprehensive free trade pact, ending years of stalled talks.

After the announcement, both sides will finalise details and ratify what has already been dubbed “the mother of all deals.”

The agreement could significantly expand bilateral trade and support Indian exports such as textiles and jewellery, which have been hit by 50% US tariffs since late August.

The expected announcement coincides with a visit to India by Ursula von der Leyen and António Costa, who are attending Republic Day celebrations and holding summit-level talks with Modi.