India is actively considering a phased reduction of its car import tariffs as part of efforts to finalise a long-pending trade agreement with the European Union (EU). According to multiple sources with direct knowledge of the discussions, India is willing to cut the current car import duty from over 100% to around 10% gradually. This move, while bold, is aimed at attracting foreign investment and resolving stalled trade negotiations.

The European Union is demanding broader access to India’s highly protected automobile market, which currently imposes some of the steepest import tariffs in the world. The talks have gained momentum after similar pressure from the United States, with both powers pressing for elimination or significant reduction of tariffs on petrol and electric vehicles.

Domestic Industry Resistance

Despite the government's openness to foreign demands, India’s domestic automakers have expressed serious concerns. Companies like Tata Motors and Mahindra & Mahindra are advocating for a more conservative approach. They argue that slashing import tariffs sharply could cripple local manufacturing, undermine domestic investments, and slow the growth of India’s indigenous electric vehicle (EV) sector.

The auto industry’s counterproposal is to reduce tariffs on petrol cars from over 100% to 70% immediately, then progressively cut it to 30% in the coming years. For electric vehicles, they suggest no tariff reduction before 2029, and only then limit the drop to 30% through a controlled phase-in on limited import volumes.

Global Trade War Pressure Accelerates Talks

The urgency to finalize the trade deal also stems from the escalating risk of a global trade war, triggered by U.S. President Donald Trump’s new round of tariffs. As a result, India and the EU are under pressure to resolve long-pending differences and reach a mutually beneficial agreement before the end of the year.

“If the EU is now feeling pressure to strike a deal with India, we need to see how we can capitalise on that. It's all about leverage,” a source from the Indian auto industry commented.

Tesla, European Carmakers Among Potential Beneficiaries

Foreign automakers stand to gain substantially if India agrees to reduce its import duties. Volkswagen, Mercedes-Benz, BMW, and Tesla are among the companies likely to benefit from increased access to India’s large and growing car market. Tesla, in particular, is planning to begin sales of imported EVs in India, potentially sourced from its Berlin-based factory.

The India-EU deal could pave the way for European manufacturers to enter the Indian market more competitively, reducing prices for premium and eco-friendly cars.

Current Status of Negotiations

Negotiations between India and the EU have been ongoing for several years, but recent rounds have shown progress. The last round of formal dialogue occurred in March, with both parties outlining areas of divergence and convergence. The European Commission has noted that “the levels of ambition differ” in key sectors but has not disclosed specifics.

India’s commerce ministry has been holding internal consultations, including meetings with the heavy industries ministry and representatives from the Society of Indian Automobile Manufacturers (SIAM). These closed-door discussions have evaluated the strategic and economic implications of modifying import duties.

While India hasn’t officially confirmed its offer of a 10% tariff, government insiders indicate the possibility is real, albeit subject to further internal consensus.

Heavily Guarded Market Could See Transformation

India’s car market is one of the largest globally, with annual sales of over 4 million units, but it remains one of the most closed to foreign players due to import levies. Reducing these barriers would represent a significant shift in India’s trade and industrial policy and send a strong signal to international investors.

It could also reshape competition in India’s auto sector, currently dominated by Maruti Suzuki, Tata Motors, Mahindra, and other local giants.

Strategic Timelines and Policy Outlook

India and the EU have set a goal to conclude trade talks by the end of the year, in a bid to mitigate the impact of escalating trade barriers and strengthen bilateral economic ties. While both sides are cautious, the momentum is building, and negotiators are under pressure to reach compromises on tariffs, market access, and investment protections.

António Costa, President of the European Council, recently emphasized on social media that it was time to “decisively advance in negotiations with India,” suggesting the EU is eager to lock in a deal that ensures its companies are not left behind in the evolving global economic order.

Final Thoughts

The evolving talks between India and the EU mark a potential inflection point for India’s auto trade policy. While the domestic industry continues to seek safeguards and a more gradual shift, the government seems inclined to offer a middle path—one that protects local players while meeting global expectations.

The next few months will be crucial, not just for the Indian automotive ecosystem, but for the country’s broader trade posture in a geopolitically tense world. The balancing act between domestic protection and global integration will define the success of this landmark agreement.

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