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Akbar Novruz

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India and the European Union are reportedly close to finalizing a long-negotiated free trade agreement that could come into force as early as January 27, signaling a major shift in trade relations between the two sides, Azernews reports.

According to Reuters, the deal would see India sharply reduce customs duties on cars imported from the EU, cutting the rate to 40 percent from the current 110 percent once the agreement is signed.

Sources familiar with the negotiations said Prime Minister Narendra Modi’s government has agreed to immediately lower duties on around 200,000 cars imported from the EU’s 27 member states, provided the vehicles are priced above 15,000 euros.

Under the proposed framework, import duties on these vehicles would be gradually reduced further, eventually reaching 10 percent, a move expected to significantly improve market access for European automakers such as Volkswagen, Mercedes-Benz and BMW. However, electric vehicles will be excluded from the arrangement for at least the first five years, a measure aimeat protecting domestic investments by Indian manufacturers Mahindra & Mahindra and Tata Motors.

Beyond the automotive sector, the agreement is expected to give a broader boost to bilateral trade. Indian exports of textiles and jewelry, in particular, stand to benefit, as these products have faced 50 percent tariffs in the United States since late August last year, making greater access to the European market increasingly important for Indian exporters.

India is currently the world’s third-largest car market, after the United States and China, producing about 4.4 million vehicles annually. Despite the market’s size, European carmakers account for less than four percent of total sales. The sector is dominated by Japan’s Suzuki Motor, alongside domestic brands Mahindra and Tata, which together control roughly two-thirds of the market.

If concluded, the free trade agreement would mark a significant step in India-EU economic relations, potentially reshaping market dynamics in one of the world’s fastest-growing automotive and consumer markets.