As EU FTA enters final stretch, Indian automakers worry about a China backdoor

As India and the European Union move into what are seen as the final rounds of negotiations for a long-pending free trade agreement, a new concern has come sharply into focus. According to a ToI report, local automobile makers are urging caution, warning that the deal could open a route for Chinese electric vehicles to enter India at lower duties through Europe.The core fear is not European competition alone, said the report. Industry executives say some Chinese manufacturers could use EU member states to assemble vehicles and ship them to India, benefiting from tariff concessions under the trade pact.Indian auto companies have asked the government to structure the agreement with safeguards. Their demand is: if electric vehicles are to be allowed under lower duties, they should be limited to high-end models, with a high price threshold and restricted volumes.They are also pressing for strict rules on value addition. Industry representatives suggest local value addition of 50 per cent or more to prevent simple assembly operations from qualifying for trade benefits.

People familiar with the discussions say these concerns have been conveyed to negotiators. The message is that timing matters, especially as Indian firms scale up investments in electric mobility.

The comparison with the India-UK trade deal is instructive. That agreement, signed last year, offered protection for electric vehicles, though it involved compromises in other areas.

The industry accepts that trade-offs are part of any deal. But the EU, they argue, presents a more complex risk because of its size and integrated manufacturing base.

Several Chinese electric vehicle makers have struggled to establish operations in India. Tighter checks on foreign direct investment have limited their ability to set up factories, forcing them to rely on imports.

A trade deal with Europe could change that equation. By assembling vehicles in EU countries, such firms could legally access the Indian market at reduced duties.An industry executive said Indian companies are investing heavily to build capabilities across the EV value chain. Opening the market too early, the executive warned, could weaken the domestic ecosystem before it becomes globally competitive.The concern comes at a time when India is pushing a broader shift towards green mobility. The government wants faster adoption of electric vehicles to cut emissions and reduce fuel imports.

At the same time, India is keen to attract global manufacturers. Companies such as Tesla, Mercedes and BMW are widely expected to export electric vehicles to India using their European plants.

Tesla’s case highlights the issue. At present, the company imports vehicles from its Chinese facilities, but lower tariffs could shift shipments to its plant in Germany.

The government had earlier announced a scheme to allow lower-duty imports of electric cars for a limited period. In return, companies were expected to commit to investments within three years.

That scheme drew no takers. Some carmakers chose to wait, preferring clarity on trade agreements before finalising their India plans.

This pause reflects the wider uncertainty around policy direction. Manufacturers want predictable rules before committing capital to local production or imports.

For negotiators, the challenge lies in balancing competing priorities. India wants access to European markets and deeper economic integration, while also protecting a strategic domestic industry.

The electric vehicle sector sits at the centre of this tension. It is both a growth opportunity and a vulnerability for India’s manufacturing ambitions.

The government’s outreach to Europe, however, is not limited to the EU. Commerce and industry minister Piyush Goyal on Wednesday invited companies from Liechtenstein to invest in India.

He encouraged them to use the India-EFTA trade agreement to expand their presence. India and the four-nation European Free Trade Association bloc implemented a free trade agreement last year.

Goyal was in Liechtenstein on an official visit when he made the pitch. The message was that India remains open to investment that builds long-term capacity.

The EFTA deal has been seen as a model of targeted engagement. It offers market access while aligning with India’s investment and manufacturing goals.

Whether a similar balance can be struck with the EU remains an open question. The scale of European manufacturing, combined with Chinese linkages, makes the stakes higher.

As talks enter their final phase, the auto industry is watching closely. Its concern is not competition per se, but the risk of policy gaps being exploited. For India, the outcome will shape the future of its electric vehicle market.

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