Here is why Volkswagaon, Mercedes-Benz, and BMWs may get cheaper in India

European cars from auto makers like Volkswagen, Mercedes-Benz and BMWs may get cheaper in India as the country is planning to slash import duties from 110 per cent to just 40 per cent as part of the India-EU free trade agreement.

The reduction, which would bring in rapid changes to India's car market, could be announced as early as Tuesday.

Over time, India is also planning to slash rates up to 10 per cent, which would further ease access for EU auto makers into a car market that is seeing a rapid increase in sales.

India currently levies import duties from 70 per cent to 110 per cent on foreign cars, a move that has garnered much criticism from global auto executives.

Under the new proposal, duties will be slashed immediately for European-made cars priced above 15,000 euros ($17,739), Reuters reported. This opens up the market to about 200,000 combustion cars annually.

The tariff relief, however, will not be extended to Battery electric vehicles for at least the next five years. This is to maintain the current protections for EVs by domestic manufacturers such as Mahindra and Tata Motors and their early investments. After 5 year European EV’s are expected to follow a similar tariff reduction.

European cars only make up about 4 per cent of India's annual 4.4 million unit market. India auto market is dominated by domestic manufacturers like Mahindra and Tata. The market is also expected to grow to 6 million units annually by 2030.

The lower import duties would allow auto makers to test different models in India at competitive prices before deciding to ramp up local manufacturing.

Companies like Renault and Volkswagen have shown interest in expanding investments as competition with Chinese brands has intensified.