Come 2017, Indian car buyers can hope to drive in the latest Audi or BMW at a considerably lower price as the government may lower the import duty to 30% by then and scale it down further to 20% in 2020 as part of the Broad-based Trade & Investment Agreement (BTIA) with the 27-nation bloc.

In case of automobiles, when to reduce import duty to 30% is a bone of contention. EU is demanding that the levy be slashed to that level in 2017 itself, while Indian negotiators had got the Trade & Economic Relations Committee headed by the prime minister to agree to the cut sometime around 2022.

The current tariff for import of automobiles is 100%, although the notified rate, which is applied to new cars, is 60%.

Smaller cars are usually manufactured locally using local parts although some components are imported. But there is a fear that several European carmakers that do not have manufacturing facilities in India may opt for the import route and would refrain from setting up plants there.

To hit local players

The twin moves may not be palatable to the domestic industry as the tariff protection that they have long enjoyed will go soon after a deal is signed but are critical elements of the trade pact that is under negotiations for over five years.

"Protection cannot be available endlessly. In any case, there is a long transition period of at least four-five years or so for the auto industry," said an official privy to the discussions. In case of automobiles, the deal will ensure that European carmakers will take pole position in the race for domestic sales as the government has ignored demands for a "level-playing field" for their Japanese and Korean rivals despite India having existing trade agreements with the two Asian manufacturing giants.

In fact, the two proposals go far beyond what was originally offered. Initially, the government had only offered to lower import duty on a specified number of vehicles. But subsequently, it seems to have agreed to an across-the-board reduction along with a cut in customs duty on around 65 auto parts and machinery.