Published by Global Banking and Finance Review
Posted on April 7, 2025
By Aditi Shah and Shivangi Acharya
NEW DELHI (Reuters) - The European Union wants India to eliminate tariffs on car imports under a long-pending trade deal and Prime Minister Narendra Modi's government is willing to sweeten its current proposal to seal the talks, sources told Reuters.
India is open to the phased reduction of tariffs to 10% from more than 100%, two industry sources and a government official said. That is despite industry lobbying for India to retain at least a 30% tariff even if it starts reducing the levy, and also not tinker with import duties on EVs for four more years to protect domestic players.
The EU's demands come weeks after U.S. President Donald Trump's administration sought a similar elimination of import duties on cars, including EVs, as part of bilateral trade talks with India, piling pressure on domestic carmakers.
Tariff cuts will be a victory for European carmakers such as Volkswagen, Mercedes-Benz and BMW, widening their access to India. It could also be a win for Elon Musk's Tesla which will begin sales of imported EVs in India this year probably from its Berlin plant.
"EU has come back asking for a better deal and India wants to make a better offer," said one of the industry sources.
India's commerce ministry conveyed the EU's demands and India's stance to officials from the heavy industries ministry and auto industry representatives in a meeting last week, the three sources said.
The sources, who have knowledge of the talks, spoke on condition of anonymity because the negotiations are ongoing and private.
The European Commission declined to comment on specifics but shared 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," Olof Gill, commission spokesperson for trade said in a statement.
India's commerce ministry and the Society of Indian Automobile Manufacturers (SIAM), which represents major carmakers on the world's third-largest car market, did not respond to emails seeking comment.
HEAVILY PROTECTED MARKET
India's 4 million-unit-a-year car market is one of the most protected in the world and domestic carmakers have argued sharp tariff cuts would wipe out investment in local manufacturing by making imports cheaper.
Companies such as Tata Motors and Mahindra & Mahindra have especially lobbied against lowering import tariffs on EVs, saying it would hurt a sector in which they have invested heavily and in which they plan to pump more money.
Similar to its proposal to the U.S., India's auto industry has proposed an immediate reduction of tariffs on a limited number of petrol cars to 70% from more than 100% and then carrying out cuts in phases to 30%. On EVs, carmakers want no tariff cuts until 2029 followed by a phased reduction on limited imports to 30%, the sources said.
While it was not immediately clear if India had already made its 10% tariff offer to the EU, analysts expect both sides to be more flexible in negotiations given the threat of a global trade war and recessionary impact of Trump's hefty tariff increases.
India and the EU have been in trade talks for several years and in February agreed to conclude the deal by the end of the year as they look to soften the impact of tariffs.
António Costa, president of the European Council, said last week on social media platform X 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 capitalise on that. It's all about leverage," said the first industry source.
(Reporting by Aditi Shah and Shivangi Acharya in New Delhi; Editing by Kate Mayberry)
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