India and the United States of America are close to finalising an interim trade agreement that would reduce import duties on high-end American automobiles, according to a media report.

Electric vehicles are excluded from the scope of these concessions.

Under the proposed framework, import duties on US-made internal combustion engine vehicles with capacities above 3,000 cc would be reduced to 30%, compared with the current rate of up to 110%. The reductions would be phased in over a ten-year period.

Electric vehicles excluded from tariff relief

Electric vehicles are not included in the agreement. This excludes a lower-duty import route for Tesla, which has previously cited India's high import taxes as a barrier to market entry.

This differs from India's trade agreement with the European Union, where tariff rates are as low as 10% across a broader range of vehicles, including certain electric vehicles. The variation indicates that India applies its tariff policy differently across trade partners.

US-made motorcycles to attract zero import duty

Reuters reports that India is likely to eliminate import duties on US-made motorcycles, which would primarily affect brands such as Harley-Davidson.

Harley-Davidson's India-bound models are currently sourced from Thailand rather than the United States and would therefore not benefit from the India-US trade agreement. Any change in pricing would depend on whether the company alters its production or sourcing strategy to import selected models directly from the United States.

Protection of domestic automobile industry

India, identified by Reuters as the world's third-largest car market after the United States and China, has historically maintained high import duties, currently ranging from 70% to 110%, to regulate the domestic automobile sector. These tariffs have increased the cost of fully imported vehicles and have incentivised manufacturers to undertake local assembly rather than direct imports.

The proposed tariff adjustments are part of broader trade negotiations between India and the United States and are expected to be formalised in March. The actual effect on vehicle prices and import volumes will depend on the implementation schedule and any applicable caps or conditions.

Currently, the concessions are limited to internal combustion engine vehicles and motorcycles, with electric vehicles remaining outside the scope of the agreement.