* Merkel reports more progress "than for many years"
* Car import tariffs, foreign investment caps are key issues
By Stephen Brown
BERLIN, April 11 (Reuters) - Indian Prime Minister Manmohan Singh and Germany's Angela Merkel said on Thursday they had made progress on breaking an impasse in free trade talks between India and Europe that have stumbled on access to India's car and insurance markets.
"The situation is that such a deal appears to be reachable," Merkel told a news conference with Singh in Berlin after talks that included members of both of their cabinets.
"We haven't yet overcome the problems but I want to thank India for its high degree of flexibility on certain issues, on which we have got further today than for many years," she said. Merkel went on to describe the negotiations as "dynamic".
Talks between the EU and Asia's third largest economy have been dragging on for years. Reducing Indian car import tariffs and caps on foreign investment in insurance are both of major interest to Germany, India's biggest trading partner in Europe.
"We agreed on the importance of the early conclusion of a broad-based Indian-EU trade and investment deal," said Singh.
"There are some problems with the level of tariff protection we give to India's automobile sector," said Singh, adding that trade ministers meeting in Brussels later this week should be able to show further progress.
Singh also said his cabinet had approved an increase in foreign participation in insurance firms to 49 percent from the current 26 percent, which now had to be approved by parliament.
German business complains that the trade relationship lacks the dynamism of that with China, despite Delhi's democratic credentials - to the point that one German official has called India a "sleeping giant".
Such frustration stems partly from disappointment that India chose France's Dassault Aviation for an order of 126 fighter jets worth $10 billion in January 2012, over a bid from Eurofighter backed by Germany, Britain and Italy.
Germany was lead negotiator for the Eurofighter consortium of BAE, Finmeccanica and EADS. With the French contract bogged down in a cost dispute, Eurofighter says it is still in the race but Berlin played down expectations that Thursday's talks with India could see another push.
Singh also said he told Merkel of "our resolve to restore India's own growth to our long-term trend of 7.5 to 8 percent per annum". Indian growth slowed to an estimated 5 percent in the 2012/13 fiscal year - still a level that Europe, and even its biggest economy Germany, can only dream of at present.
Singh, 80, an economist by training, said higher growth rates would help fight poverty as long as New Delhi ensured that the benefits were distributed fairly, adding: "Particularly our women deserve a better deal."
He described the gang rape of a young student on a Delhi bus in December as a "ghastly crime" but said Indian democracy and the government had reacted quickly and effectively.
"You have my assurance that India is an open book, India is an open society, committed to all the rules of a strong democracy," he said.
Merkel said she raised the issue of women's rights with Singh, adding that Germany was focused on bilateral development programmes that would help India transform "from an agrarian country with certain traditions". She did not elaborate.
"Germany wants to be a good, certainly critical, but also helpful partner in such questions," Merkel said.
(Additional reporting by Andreas Rinke, Editing by Gareth Jones and Mark Heinrich)