India is preparing to make its most significant concession yet in opening its tightly protected car market, agreeing to sharply lower import duties on vehicles from the European Union as part of a long-awaited free trade agreement expected to be announced this week, according to people familiar with the negotiations.

According to the Reuters news agency, New Delhi has agreed to reduce tariffs on a limited category of EU-made cars to 40%, down from levels that currently reach as high as 110%. The initial cut will apply to vehicles with an import price above €15,000, the people said, marking a notable shift in a sector long shielded from foreign competition.

Over time, the tariff could be reduced further to 10%, significantly improving access for European manufacturers including Volkswagen, Mercedes-Benz and BMW. The move represents the clearest signal yet that Prime Minister Narendra Modi’s government is willing to trade protectionism for broader strategic and commercial gains in its negotiations with Brussels.

India and the EU are expected to announce on Tuesday, January 27, that talks on the free trade agreement have concluded, ending years of stop-start negotiations. In India, January 26 is a national holiday to mark Republic Day. Officials on both sides will then move to finalise legal texts and begin the ratification process for what has been dubbed in policy circles the “mother of all deals”.

The agreement is expected to bolster bilateral trade flows and provide relief for Indian exporters such as textile and jewellery makers, which have been hit by steep US tariffs introduced last year.

Despite being the world’s third-largest car market by volume after the US and China, India has historically imposed some of the highest import barriers globally. Current duties stand at 70% for lower-priced vehicles and rise to 110% for premium models — a regime that has drawn repeated criticism from global executives, including Tesla chief Elon Musk.

Under the proposed framework, India would allow imports of roughly 200,000 internal combustion engine vehicles a year at the reduced tariff rate Reuters adds, though the quota could still be adjusted before the deal is finalised, one of the people said.

Battery electric vehicles will be excluded from tariff cuts for at least the first five years, reflecting New Delhi’s desire to shield domestic champions such as Tata Motors and Mahindra & Mahindra as they scale up investment in the nascent EV sector. After that period, electric vehicles would be brought into line with the broader tariff reductions.

Lower duties would particularly benefit European carmakers that already manufacture in India but have struggled to expand beyond niche segments. EU brands account for less than 4% of India’s 4.4mn-unit annual car market, which is dominated by Japan’s Suzuki Motor and domestic groups Tata and Mahindra.

With total demand projected to rise to 6mn vehicles a year by the end of the decade, European manufacturers are now positioning for renewed growth in a key sector.