India to cut car import tariffs to 40% under landmark EU trade deal

India is set to sharply reduce tariffs on cars imported from the European Union, cutting duties to 40% from levels as high as 110%, according to sources familiar with the negotiations. The move would mark India’s biggest opening yet of its highly protected auto market as New Delhi and Brussels near a long-awaited free trade agreement that could be announced as early as Tuesday.

The government of Prime Minister Narendra Modi has agreed to immediately lower taxes on a limited number of EU-made cars priced above 15,000 euros ($17,739), the sources said. Over time, those duties would be reduced further to 10%, significantly improving access for European automakers including Volkswagen, Mercedes-Benz and BMW.

The sources spoke on condition of anonymity as the discussions are confidential and subject to last-minute changes. India’s commerce ministry and the European Commission declined to comment.

The agreement, already being dubbed “the mother of all deals,” is expected to be unveiled on Tuesday, concluding years of negotiations. After the announcement, both sides will finalize technical details and move toward ratification.

The pact is expected to boost bilateral trade and support Indian exports such as textiles and jewellery, which have been under pressure since the United States imposed 50% tariffs on some goods in late August.

India is the world’s third-largest car market after the United States and China, but it has long shielded its domestic auto industry with steep import duties. Current tariffs range from 70% to 110%, levels that have drawn repeated criticism from global auto executives, including Tesla chief Elon Musk.

Under the proposal, India would immediately cut import duties to 40% for around 200,000 combustion-engine vehicles a year, one source said, representing its most aggressive step yet toward liberalizing the sector. The quota size could still change before the deal is finalized.

Battery electric vehicles would be excluded from duty reductions for the first five years to protect investments by domestic manufacturers such as Mahindra & Mahindra and Tata Motors. After that period, electric vehicles would be subject to similar tariff cuts, the sources added.

Lower import taxes would benefit European automakers including Volkswagen, Renault and Stellantis, as well as luxury brands Mercedes-Benz and BMW. Although these companies already manufacture some vehicles locally, high tariffs have limited their ability to expand their product offerings and market share.

Reduced duties would allow carmakers to sell imported vehicles at lower prices and test Indian consumer demand with a wider range of models before committing to larger local manufacturing investments, one source said.

European brands currently account for less than 4% of India’s annual car market of about 4.4 million units. The market is dominated by Suzuki Motor of Japan and domestic players Mahindra and Tata, which together control roughly two-thirds of sales.

With India’s car market projected to grow to around 6 million units a year by 2030, several automakers are already planning new investments. Renault is revamping its India strategy as it looks for growth beyond Europe, while Volkswagen Group is preparing the next phase of its investment in the country through its Skoda brand.