India plans to sharply cut tariffs on cars imported from the European Union to 40% from current levels of up to 110%, according to sources familiar with the negotiations. The move would mark the most significant step yet toward opening India’s vast car market, as New Delhi and Brussels edge closer to announcing a broad free trade agreement that could be finalised as early as Tuesday.

Two sources briefed on the talks told Reuters that Prime Minister Narendra Modi’s government has agreed to immediately reduce import duties for a limited number of cars from the EU’s 27 member states with an import price above €15,000. The same sources said the tariff would then be gradually lowered to as little as 10%, easing access to the Indian market for European automakers such as Volkswagen, Mercedes-Benz and BMW.

The sources requested anonymity because the negotiations are confidential and subject to last-minute changes. India’s commerce ministry and the European Commission declined to comment.

“The mother of all deals”

India and the European Union are expected to announce on Tuesday the conclusion of years of difficult negotiations on the free trade agreement, already dubbed “the mother of all agreements.” The political announcement would be followed by the finalisation of technical details and the ratification process.

The deal is expected to boost bilateral trade and support Indian exports such as textiles and jewellery, which have been hit by 50% U.S. tariffs imposed since late August.

India is the world’s third-largest auto market by sales after the United States and China, but its domestic industry remains among the most protected globally. New Delhi currently levies tariffs of 70% to 110% on imported cars, a policy repeatedly criticised by auto industry executives, including Tesla CEO Elon Musk.

Under the proposal, India would cut tariffs to 40% on around 200,000 internal combustion engine vehicles per year, a move described as the most aggressive opening of the sector to date. The quota, however, could be revised before a final agreement is reached.

Electric vehicles would be excluded from the tariff cuts for the first five years to protect investments by domestic groups such as Mahindra & Mahindra and Tata Motors. After that period, electric vehicles are expected to follow a similar tariff-reduction path.

Market dominated by Japanese and domestic players

The tariff reductions are expected to significantly benefit European automakers such as Volkswagen, Renault and Stellantis, as well as luxury brands Mercedes-Benz and BMW. Although these companies already manufacture vehicles in India, high import duties have limited their ability to expand market share.

Lower tariffs would allow automakers to price imported models more competitively and test demand with a broader product range before committing to new local production investments, one source said.

European carmakers currently account for less than 4% of India’s 4.4-million-vehicle annual market, which is dominated by Japan’s Suzuki Motor and domestic conglomerates Mahindra and Tata, together controlling about two-thirds of sales.

With the Indian market expected to reach 6 million vehicles annually by 2030, several automakers are preparing new investment cycles. Renault is pursuing a relaunch in India as part of a strategy to expand beyond Europe, where Chinese carmakers are gaining ground, while Volkswagen Group is finalising the next phase of investment through its Skoda brand.