India is preparing to sharply reduce import duties on cars imported from the European Union (EU), according to an exclusive Reuters report, marking its most significant move yet to open up one of the world’s most protected automobile markets. The tariff cut is part of a broader Free Trade Agreement (FTA) between India and the EU that could be announced as early as Tuesday, people familiar with the discussions said.

Sharp duty cuts planned for select EU imports

Under the proposed framework, India will lower import duties on a limited number of EU-made cars priced above €15,000 to 40% from current levels that go as high as 110%, the sources said. Over time, these duties are expected to be reduced further to 10%, easing access for European automakers including Volkswagen, Mercedes-Benz and BMW.

‘Mother of all deals’ to boost bilateral trade

The agreement, described by officials as the “mother of all deals,” aims to significantly expand bilateral trade. It comes at a critical time for India, as key export sectors such as textiles and jewellery have been hit by steep U.S. tariffs in recent months.

India’s highly protected auto market

India currently levies import duties of 70% to 110% on fully built cars, a policy that has long drawn criticism from global auto executives. As part of the negotiations, New Delhi has proposed an immediate duty cut for up to 200,000 petrol and diesel vehicles annually, though the final quota could still change.

Electric vehicles excluded in initial phase

Battery Electric Vehicles (BEVs) will be excluded from the lower tariffs for the first five years, the sources said, as the government seeks to protect investments by domestic manufacturers such as Tata Motors and Mahindra & Mahindra. After this transition period, EVs are expected to follow a similar duty-reduction path.

European carmakers eye market expansion

Lower tariffs are expected to benefit European automakers, many of which already manufacture locally but face constraints due to high import costs. Executives see the move as an opportunity to test demand with a wider range of models before expanding local production.

Welcoming the progress in India-EU trade talks, BMW Group India President and CEO Hardeep Singh Brar said the proposed agreement sends a strong signal of confidence in India’s long-term growth outlook. He said India was no longer just a large market but a future-ready economy supported by reforms aimed at building a globally competitive ecosystem. Brar added that a balanced FTA could help stimulate demand in the luxury segment while strengthening supply chain integration, which is increasingly important amid geopolitical uncertainties.

He noted that any reduction in customs duties on completely built units would help expand India’s luxury car market, which currently accounts for about 1% of overall passenger vehicle sales. While CBUs make up around 5% of BMW India’s sales, Brar said such a framework would allow the company to broaden its product portfolio, introduce globally popular models and test new offerings, potentially supporting deeper localisation as volumes scale up.

European brands currently account for less than 4% of India’s 4.4-million-unit car market, which is dominated by Suzuki Motor and Indian manufacturers Tata and Mahindra. With annual demand projected to reach 6 million vehicles by 2030, companies including Renault and Volkswagen Group are preparing fresh investment plans for India.