Indian automobile manufacturers are raising a red flag as the country enters the final stages of negotiating a free trade agreement (FTA) with the European Union. Their primary concern is that the pact could become a backdoor entry route for Chinese electric vehicles (EVs) into the Indian market at significantly reduced import duties.
Industry's Call for Strategic Protection
According to sources familiar with the ongoing deliberations, domestic auto players have strongly advised the government to structure the FTA with stringent safeguards. They propose that only high-end electric vehicles should be permitted for import, and that too with a high price threshold and in limited numbers. Furthermore, the industry is pushing for a substantial local value addition requirement, potentially set at 50% or more, for any imported EVs to qualify for duty concessions.
This cautious stance stems from the fear that Chinese EV manufacturers, some of whom have faced hurdles in setting up local operations due to Foreign Direct Investment (FDI) checks, could exploit the trade deal. They might establish assembly units within EU member nations and then export the finished vehicles to India, leveraging the lower tariffs offered by the FTA. "We are seeing Indian companies work hard on EVs and also move up the value chain. It is important to protect them at this time so that we have a strong eco-system for green vehicles before it is opened up to competition," stated an industry executive.
Learning from the UK Deal and the Tesla Factor
The Indian auto sector acknowledges the need for trade-offs to secure a successful agreement, a lesson reinforced during the FTA negotiations with the United Kingdom signed last year, where EVs were protected. However, the scale of the potential challenge is perceived to be larger with the 27-nation European Union bloc.
Compounding the industry's wariness is the expectation that several global automotive giants plan to use their European manufacturing bases to ship EVs to India. Companies like Tesla, Mercedes, and BMW are eyeing the vast and growing Indian market, where the government is actively promoting a shift to green mobility. Notably, while Tesla currently imports its cars from China, lower tariffs under an EU FTA could pivot its Indian supply chain to its German plant.
Investment Pause and Parallel Diplomacy
The heightened anticipation around these trade deals has also impacted the government's recent policy initiative. The scheme to allow lower-duty imports of electric cars in exchange for a commitment to local investment within three years has reportedly seen no takers. Several automakers are waiting for the outcome of the EU and other FTA negotiations before finalizing their India investment strategies.
Amidst these complex trade discussions, Commerce and Industry Minister Piyush Goyal continues to actively seek foreign investment. On Wednesday, during an official visit, he invited companies from Liechtenstein to invest in India and leverage the recently implemented trade pact between India and the European Free Trade Association (EFTA), a four-nation bloc.
The coming weeks of negotiation will be critical in determining whether the final India-EU FTA balances the promise of greater market access with the need to shield a domestic industry that is still scaling up its electric vehicle capabilities.
