India is planning a major reduction in import tariffs on cars from the European Union, cutting duties to 40 per cent from levels as high as 110 per cent, in what would be the country’s biggest opening yet of its closely guarded automobile market. The move comes as New Delhi and Brussels close in on a long-awaited free trade agreement (FTA), which could be announced as early as Tuesday.According to sources briefed on the talks, the Modi government has agreed to immediately lower import taxes on a limited number of cars from the 27-nation EU with an import price above 15,000 euros, news agency Reuters reported. Over time, these duties could be reduced further to 10 per cent, significantly easing access to the Indian market for European automakers such as Volkswagen, Mercedes-Benz and BMW.

Big shift for a protected auto market

India currently levies import duties of 70 per cent to 110 per cent on foreign cars, a policy often criticised by global auto executives, including Tesla CEO Elon Musk. Under the proposal, New Delhi has offered to slash duties to 40 per cent immediately for around 200,000 combustion-engine cars annually, as per Reuters, marking its most aggressive move yet to open up the sector. Battery electric vehicles will be excluded from duty cuts for the first five years to protect domestic players such as Tata Motors and Mahindra & Mahindra, after which similar reductions could apply.Lower tariffs would benefit European manufacturers, whose share of India’s 4.4-million-unit annual car market remains under 4 per cent. With the market expected to grow to six million units by 2030, the proposed cuts could allow automakers to test demand with imported models before committing to deeper local manufacturing investments.

Trade boost amid global tariff pressures

The broader FTA is expected to significantly expand bilateral trade and help Indian exporters offset the impact of steep US tariffs. The EU is already India’s largest trading partner in goods, with bilateral trade valued at $136.53 billion in 2024–25, while services trade stood at over $83 billion. The deal is also seen as a strategic step to diversify supply chains and reduce dependence on China amid shifting global trade dynamics.

‘Mother of all deals’ nearing conclusion

India and the EU are expected to announce the conclusion of negotiations for the FTA this week, a pact that commerce and industry minister Piyush Goyal has dubbed the “mother of all deals”. Talks for the agreement began in 2007 and are now nearing the finish line after nearly 18 years. The announcement is expected during the India-EU Summit on January 27, with Prime Minister Narendra Modi set to hold talks with European Commission President Ursula von der Leyen and European Council President Antonio Costa.