The European Union is urging India to eliminate tariffs on car imports under a long-pending trade deal, and Central government is reportedly willing to enhance its current offer to finalize the negotiations, sources told Reuters.
India is open to gradually reducing tariffs to 10% from over 100%, according to two industry sources and a government official. This move comes despite lobbying from the domestic automotive industry, which has pushed for India to maintain at least a 30% tariff, even if it starts cutting the levy. The industry also wants a delay in tariff reductions on electric vehicles (EVs) for the next four years to protect local manufacturers, Reuters reported.
The EU’s demands come after the US administration under President Donald Trump sought a similar removal of import duties on cars, including EVs, as part of bilateral trade discussions with India. These developments are intensifying pressure on India’s domestic automakers. A reduction in tariffs would be a win for European carmakers such as Volkswagen, Mercedes-Benz, and BMW, expanding their market access in India. It would also benefit Elon Musk’s Tesla, which plans to start selling imported EVs in India this year, likely from its Berlin plant.
“EU has come back asking for a better deal and India wants to make a better offer,” one industry source told Reuters.
Commerce ministry shared the EU’s demands and India’s stance with officials from the heavy industries ministry and the auto industry in a meeting last week, according to three sources familiar with the talks. These sources spoke on the condition of anonymity to news agency Reuters as the negotiations are still ongoing.
The European Commission declined to comment on specifics but provided a readout of its last round of talks with India in March. “For many of the key areas, the EU and India have different approaches, objectives… This translates, in some cases, in different levels of ambition,” said Olof Gill, a spokesperson for trade at the European Commission, in a statement to Reuters.
Commerce ministry and the Society of Indian Automobile Manufacturers (SIAM), which represents major automakers in the world’s third-largest car market, did not respond to emails seeking comment, Reuters noted.
India’s car market, which produces around 4 million vehicles annually, is one of the most protected in the world. Domestic carmakers have argued that significant tariff cuts could undermine local manufacturing investments by making imports more affordable. Companies like Tata Motors and Mahindra & Mahindra have specifically lobbied against reducing tariffs on EVs, arguing it could harm a sector they have heavily invested in and plan to further expand.
Similar to its proposal to the US, India’s auto industry has suggested an immediate reduction in tariffs on a limited number of petrol cars from more than 100% to 70%, followed by phased cuts to 30%. For EVs, carmakers have requested no tariff reductions until 2029, after which a phased reduction to 30% would apply to a limited number of imports, sources told Reuters.
Although it’s unclear whether India has already made its 10% tariff offer to the EU, analysts expect both sides to show more flexibility in their negotiations, given the potential for a global trade war and the economic repercussions of Trump’s substantial tariff increases, Reuters reported.
India and the EU have been engaged in trade discussions for several years. In February, both sides agreed to conclude the deal by the end of the year in an effort to mitigate the impact of tariffs. António Costa, president of the European Council, said on social media platform X last week that it was time to “decisively advance in negotiations with India.”
“If the EU is now feeling pressure to strike a deal with India, we need to see how we can capitalize on that. It’s all about leverage,” said the first industry source to Reuters.
