EU Presses India to Slash Car Import Tariffs Amid Trade Talks

The European Union has formally requested India to lower its steep import tariffs on automobiles as part of ongoing negotiations for a long-pending free trade agreement. The development comes just weeks after the United States under the Biden administration made a similar appeal, highlighting growing international pressure on India to open its automotive market to global competition.

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According to a Reuters report citing government and industry sources, the Indian government, led by Prime Minister Narendra Modi, is open to considering a phased reduction in car import tariffs—currently exceeding 100 per cent—as a concession to advance trade talks with the EU. The government is reportedly evaluating a proposal to reduce these duties gradually to 10 per cent, despite strong lobbying from the domestic auto industry to retain a higher tariff level of around 30 per cent.

At present, India maintains some of the highest car import duties in the world, a policy aimed at protecting its nascent domestic automobile sector. The country manufactures approximately four million vehicles annually and has long resisted international pressure to lower barriers that could impact local manufacturing operations.

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In response to the EU's demands, India's commerce ministry recently convened a meeting with representatives from the heavy industries ministry and leading domestic auto manufacturers to discuss the potential implications of tariff reductions. According to sources briefed on the meeting, the EU has sought broader market access and India is seeking to make a "better offer" to help conclude the trade agreement.

European automakers such as Volkswagen, BMW, and Mercedes-Benz stand to benefit significantly from any tariff cuts, which would allow them to expand their footprint in the Indian market. Tesla, which has been in discussions with Indian officials to begin operations in the country, could also take advantage of a relaxed tariff regime. The American EV maker is reportedly considering importing vehicles from its Berlin-based facility as part of its India strategy.

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However, the proposal has met with stiff resistance from Indian automakers, particularly those invested in electric vehicle (EV) production. Companies like Tata Motors and Mahindra & Mahindra argue that easing import duties—especially on EVs—could jeopardise the domestic industry's growth by giving foreign brands a significant pricing advantage. These companies have already invested heavily in EV technology and infrastructure and are urging the government to maintain the current duty structure until at least 2029.

As a compromise, the auto industry has proposed a limited and phased tariff reduction on a select number of petrol vehicles, beginning at 70 per cent and gradually lowering to 30 per cent. In the case of EVs, the industry remains firmly opposed to any tariff cuts before 2029, after which a phased reduction could be considered, subject to caps on the number of units allowed for import.

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Olof Gill, spokesperson for the European Commission on trade, acknowledged the complexity of the negotiations, stating that the EU and India have "different approaches and objectives in key areas," resulting in "varying levels of ambition." Despite this, both sides appear committed to continuing discussions aimed at finding common ground.