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India is preparing to sharply cut import duties on cars from the European Union as part of a long-pending free trade agreement, which could be announced as early as Tuesday, according to reports. 

Under the proposed deal, India plans to bring down peak import tariffs on EU-made cars to 40 per cent from the current levels of up to 110 per cent.

This would be the biggest opening so far of India’s tightly protected automobile market.

Initially, the lower duty will apply to a limited number of fully built cars priced above 15,000 euros, which is around Rs 16.3 lakh.

Over the years, these duties are expected to be reduced further, possibly to as low as 10 per cent.

This move will make it easier for European carmakers like Volkswagen, Mercedes-Benz and BMW to sell their vehicles in India.

Sources said India has agreed to immediately cut duties on around 2 lakh internal combustion engine cars every year, though the final number may still change.

Electric vehicles will not get these benefits in the first five years, as the government wants to protect investments made by domestic manufacturers. Similar duty cuts for EVs are expected at a later stage.

India and the European Union are likely to announce the conclusion of negotiations for the comprehensive free trade agreement, ending years of stalled talks.

While the announcement will be a major milestone, the deal will still need to be finalised and approved by both sides before it comes into force.

India is currently the world’s third-largest car market after the US and China, but it remains one of the most protected.

Import duties on fully built cars range between 70 per cent and 110 per cent, a policy that global auto companies have often criticised.

Lower import taxes will allow European carmakers to price their imported models more competitively in India.

It will also help them test new vehicles in the Indian market before deciding on further local manufacturing investments, reports said.

The proposed tariff cuts come at a time when European Commission President Ursula von der Leyen is on a four-day visit to India.

The European leaders are expected to hold summit-level talks with Prime Minister Narendra Modi.