India will cut import tariffs on European cars to 40% as part of a historic trade agreement with the European Union, sources familiar with the negotiations told Reuters—a move that could reshape the global auto market and challenge China's dominance in the world's most populous nation.

The reduction from current rates of up to 100% represents a major concession from New Delhi, unlocking a market of 1.4 billion people for European automakers like Volkswagen, BMW, and Mercedes-Benz. The deal comes as both India and the EU seek to reduce dependence on China and counter potential US tariff threats.

A billion people aren't a statistic—they're a billion stories. For India's growing middle class, the tariff cut could mean European cars become affordable alternatives to Chinese vehicles flooding the market. For autoworkers in Germany and France, it means access to one of the world's fastest-growing car markets.

The India-EU free trade agreement has been in negotiation for over a decade, stalled repeatedly over disagreements on tariffs, intellectual property, and market access. This breakthrough on automobiles—one of the most sensitive sectors—signals both sides are ready to finalize a comprehensive deal.

The timing is strategic. India is positioning itself as a manufacturing alternative to China, while the EU needs new markets as its economy slows and faces the prospect of American tariffs under the second Trump administration. European Commission officials have called the India deal a "geopolitical priority."

For China, the development is unwelcome. Chinese automakers have been eyeing India's massive market, particularly for electric vehicles. But with European brands now getting preferential access through lower tariffs, Beijing's auto ambitions in South Asia face a significant obstacle.

Indian consumers stand to benefit most directly. The country's car market is dominated by domestic brands like Maruti Suzuki and Tata Motors, with luxury vehicles remaining out of reach for most buyers due to punitive import duties. A 40% tariff is still substantial, but it makes premium European cars far more accessible than before.

The broader trade deal is expected to include provisions on services, agriculture, and digital commerce. For India, it means greater market access for its IT services sector and generic pharmaceuticals in Europe. For the EU, it means a foothold in the world's fastest-growing major economy and a counterbalance to Chinese influence in the region.

Negotiations are expected to conclude in the coming months, with both sides eager to announce a deal before global trade tensions escalate further.