New Delhi: India is set to slash tariffs on cars imported from the European Union to 40% from as high as 110%, Reuters reported, marking the largest opening of the country’s automobile market yet.

The move comes as India and the EU edge closer to finalising a free trade agreement (FTA), which could be announced as early as Tuesday.

According to two sources briefed on the confidential talks, Prime Minister Narendra Modi’s government has agreed to immediately reduce the tax on a limited number of cars from the 27-nation bloc with an import price exceeding 15,000 euros ($17,739).

"This will be further lowered to 10% over time," the sources told Reuters, a move that is expected to ease access to the Indian market for European automakers such as Volkswagen, Mercedes-Benz, and BMW.

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The announcement coincides with India’s Republic Day celebrations, where European Commission President Ursula von der Leyen and President of the European Council Antonio Luis Santos da Costa are chief guests. The European leaders are on a state visit to India at the invitation of Prime Minister Modi from January 25-27.

In a significant step to strengthen ties between the two largest democracies, the EU and India are set to unveil a “Security and Defence Strategic Partnership” and are closing in on the landmark Free Trade Agreement, an EU official confirmed.

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A key highlight of the summit will be the signing of the Security and Defence Partnership by EU HRVP Kaja Kallas and Indian Defence Minister Rajnath Singh. This agreement will become only the third comprehensive EU-Asia deal, following similar partnerships with Japan and the Republic of Korea.

India’s trade relations with the EU have been steadily improving in recent years. The EU remains India’s largest trading partner in goods, with total trade valued at about USD 136 billion in FY 2024-25, including exports worth USD 76 billion and imports of USD 60 billion.