The proposed move would lower duties on selected imported vehicles to 40 percent from levels that currently reach as high as 110 percent.

The tariff reduction represents the most ambitious opening yet of India’s heavily protected automobile sector. It comes as New Delhi and Brussels move toward announcing the conclusion of long-running trade negotiations.

According to people familiar with the discussions, the reduced tariff will apply to a limited number of imported cars priced above 15,000 euros. The government is expected to allow immediate duty cuts for these vehicles once the agreement framework is announced.

Over time, the tariff could be lowered further to 10 percent, gradually easing access to the Indian market for European automakers.
This phased approach is intended to balance foreign competition with the protection of domestic manufacturers.

India is currently the world’s third-largest car market after the United States and China, with annual sales of about 4.4 million vehicles.
Despite its size, the market has remained one of the most shielded globally, drawing criticism from foreign manufacturers for years.

At present, imported cars face duties ranging between 70 percent and 110 percent. These high taxes have limited the ability of global brands to compete on price and scale.

Under the new proposal, India could immediately cut import duties to 40 percent for around 200,000 combustion-engine vehicles per year. This quota-based opening may still be adjusted before the final agreement is announced.

Battery electric vehicles will not benefit from tariff cuts during the first five years of the deal. The decision reflects India’s aim to protect domestic investments in the electric mobility space.

Local players such as Tata Motors and Mahindra & Mahindra have made large commitments to electric vehicle production. Officials believe shielding EVs initially will help these firms strengthen their competitive position.

After the five-year protection period, electric vehicles are expected to follow a similar tariff reduction path. This gradual liberalisation is designed to give domestic manufacturers time to scale up.

European carmakers stand to gain significantly from the proposed changes. Companies such as Volkswagen, Renault, Stellantis, Mercedes-Benz, and BMW are expected to benefit the most.

Many of these manufacturers already assemble vehicles in India but rely on imports for premium and niche models. Lower duties would allow them to introduce a wider product range at more competitive prices.

Industry sources say cheaper imports will help carmakers test Indian consumer demand before committing to deeper local manufacturing.
This could encourage additional long-term investments in factories and supply chains.

Currently, European brands account for less than four percent of India’s passenger vehicle market. The segment is dominated by Suzuki Motor, along with Indian manufacturers Tata and Mahindra, which together command nearly two-thirds of sales.

India’s car market is projected to grow to six million units annually by 2030. This growth potential is one of the key attractions for European automakers seeking expansion beyond saturated markets.

Some companies are already planning fresh investments in anticipation of the trade deal. Renault is reworking its India strategy as it looks for growth outside Europe.

Volkswagen Group is also finalising its next phase of investment through its Skoda brand. Executives view tariff reform as critical to unlocking India’s full potential.

The broader trade agreement between India and the EU has been described by officials as transformational. It is expected to boost bilateral trade and support Indian exports such as textiles and jewellery.

Those sectors have faced headwinds due to higher tariffs imposed by other global partners. A stronger trade relationship with Europe could help offset those pressures.

Negotiations have stretched over nearly two decades, marked by repeated pauses and restarts. The current momentum reflects shifting global trade dynamics and a shared desire to reduce dependence on the United States.

If finalised, the deal would reshape India’s automotive landscape and redefine its trade ties with Europe. For policymakers, it represents a strategic bet on gradual liberalisation rather than abrupt market opening.

The proposed move is expected to reshape trade relations between India and the EU while sending a strong signal about New Delhi’s willingness to liberalise key sectors.

According to sources familiar with the negotiations, tariffs on certain imported cars from the EU will be slashed to 40 percent from levels that currently go as high as 110 percent.

This reduction is expected to apply initially to a limited category of vehicles, particularly those priced above 15,000 euros, allowing a controlled entry of European models into the Indian market.

The tariff cut is seen as a major breakthrough as India and the European Union move closer to announcing the conclusion of their trade talks.

Officials from both sides are expected to formally declare progress soon, after years of negotiations aimed at creating one of the most comprehensive trade agreements India has ever signed.

Over time, the reduced tariff is expected to be lowered further to as little as 10 percent, offering European carmakers improved long term access to the world’s third largest automobile market.

This phased approach reflects India’s attempt to balance domestic industry protection with the benefits of increased foreign competition and consumer choice.

Major European automakers such as Volkswagen, Mercedes Benz, BMW, and Renault are likely to be among the biggest beneficiaries of the deal.

For these companies, India represents a high growth market where premium and mid range vehicle demand has been rising steadily.

However, the agreement is also expected to include safeguards for India’s emerging electric vehicle sector.

Sources indicate that electric vehicles imported from the EU will not receive any tariff reduction for at least the first five years, giving domestic manufacturers time to scale up production and technology.

The trade pact is being described by negotiators as transformative due to its potential to expand bilateral trade well beyond automobiles.

Indian exports such as textiles, jewellery, and manufactured goods are expected to gain improved access to European markets under the agreement.

The timing of the deal is particularly important for India, as some of its exports have recently faced higher tariffs in other major markets.
By strengthening ties with the EU, policymakers hope to diversify export destinations and reduce vulnerability to global trade disruptions.

For consumers in India, lower car tariffs could eventually translate into a wider range of choices and more competitive pricing.
Industry analysts say the move may also push domestic automakers to improve quality, innovation, and efficiency.

At the same time, the government is likely to face pressure from local manufacturers concerned about increased competition.
Officials have stressed that the phased implementation and limited scope of initial tariff cuts are designed to protect domestic interests.

As negotiations enter their final stage, attention is now on how quickly the agreement can be ratified and implemented.
If concluded as expected, the India EU trade pact could redefine economic cooperation between the two regions for decades to come.