India is poised to significantly reduce tariffs on cars imported from the European Union, slashing them from as high as 110 per cent to 40 per cent, according to sources familiar with the ongoing free trade negotiations.

This move represents the most substantial opening of India's vast automotive market to date, as New Delhi and Brussels edge closer to sealing a landmark pact potentially as early as Tuesday.

Prime Minister Narendra Modi's government has reportedly agreed to an immediate cut in taxes for a limited number of vehicles from the 27-nation bloc, specifically those with an import price exceeding 15,000 euros, equivalent to approximately $17,739. Over time, these duties will drop further to just 10 per cent, paving the way for easier market access for major European players including Volkswagen, Mercedes-Benz, and BMW.

The discussions remain confidential, with sources declining to be named due to the sensitivity of the talks and the possibility of last-minute adjustments. Officials from India's commerce ministry and the European Commission have refrained from commenting, underscoring the delicate stage of the negotiations.

This prospective agreement has already earned the moniker 'the mother of all deals' among those involved. Once announced on Tuesday, both sides will proceed to finalise details and ratify the pact, which promises to reshape bilateral trade dynamics.

For India, the deal could provide a vital boost to exports in sectors like textiles and jewellery, which have suffered from 50 per cent tariffs imposed by the United States since late August.

As the world's third-largest car market by sales—trailing only the US and China—India has long shielded its domestic auto industry with steep import duties of 70 per cent and 110 per cent, a policy frequently criticised by industry leaders, including Tesla's Elon Musk.

New Delhi's bold proposal targets around 2,00,000 combustion-engine cars annually, though this quota remains provisional and could shift before finalisation. This aggressive liberalisation marks a departure from India's historically protectionist stance in the automotive sector.

Notably, battery electric vehicles (EVs) will be exempt from these duty reductions for the first five years. This safeguard aims to nurture investments by local giants such as Mahindra & Mahindra and Tata Motors in India's emerging EV landscape. Only after this period will EVs qualify for comparable tariff cuts.

European automakers stand to gain immensely from the lower taxes. Brands like Volkswagen, Renault, Stellantis, Mercedes-Benz, and BMW—which already produce some models locally—have struggled to expand beyond niche segments amid high barriers.

Reduced duties will enable them to offer imported vehicles at more competitive prices, allowing market testing with diverse portfolios before scaling up local manufacturing.

Currently, European marques command less than 4 per cent of India's 4.4-million-unit annual passenger car market. This is dwarfed by Japan's Suzuki Motor and indigenous players Mahindra and Tata, which together dominate two-thirds of the segment.

Looking ahead, projections indicate India's car market will swell to 6 million units per year by 2030, fuelling fresh investments. Renault is plotting a renewed push in India as it counters Chinese dominance in Europe, while Volkswagen is advancing plans via its Skoda brand.

This tariff slash not only signals India's willingness to integrate more deeply into global trade networks but also reflects strategic calculations amid geopolitical shifts. For European firms, it offers a timely foothold in one of the fastest-growing auto markets, potentially catalysing technology transfers and joint ventures that could bolster India's manufacturing ambitions under the Make in India initiative.

Based On Reuters Report