Nikhil Kamath, co-founder of Zerodha and host of the People by WTF podcast, recently interviewed Elon Musk, CEO of both Tesla and SpaceX. During the conversation, Musk revealed that he had tried to persuade US President Donald Trump not to impose sweeping tariffs on a host of trading partners but was unsuccessful. His remarks, which highlighted how tariff decisions influence global investment and trade flows, brought attention to India’s own duty framework. With the episode released just earlier last week, the discussion raised an important policy question: does India’s current tariff structure support its manufacturing ambitions, particularly in emerging sectors such as electric vehicles (EVs)?
India’s high tariff strategy did not appear by accident. It was built on a clear economic rationale. India has kept tariffs higher than many major economies for the longest time now. The intention behind this was to protect young domestic industries, reduce dependence on imports and prevent a repeat of past balance of payments crises. When tariffs were levied on imported electronics under the Phased Manufacturing Programme (PMP) between 2016 and 2020, they supported domestic assembly and helped India emerge as one of the world’s largest mobile phone production centres.
The role of tariffs is much more complicated; the structure that once offered protection has grown restrictive. Tariffs on imported batteries, and motors, increases the cost of production, as firms rely on imported parts. This hinders the scaling of new technologies as essential parts become expensive, discouraging global companies from investing in India.
Such constraints were evident in Tesla’s efforts to enter India; batteries and powertrains account for a large share of EV costs as well as high duties on Completely Built-Up (CBU) units make it difficult for companies to test demand before committing to local manufacturing. Domestic producers face the same issue, that of, a surge in the price of key components raises the cost of production. Meanwhile, countries with more calibrated tariff regimes allow firms to import components initially and expand localisation over time.
This year, India’s emerging EV market is witnessing increasing competition from global brands. VinFast, the Vietnam-based company, after commencing its retail operations in India with its VF6 and VF7 models, recorded 131 vehicle sales in October, 2025. Tesla’s launch in India has been modest so far. Since it started deliveries in September 2025, the company has sold only 157 units, including a mere 48 in November. This places it well behind established competitors such as BMW, which sold 267 units in the same month. Meanwhile, the Chinese brand, BYD in India is scaling up quicker than many anticipated; between January and November this year, it registered over 5,100 EV sales, roughly doubling its total deliveries compared to all of last year. Such a contrast highlights how the Indian EV market currently favours brands combining competitive pricing, wider dealer networks and lower dependence on high import duties. Countries like Vietnam and China allowed easier early imports to build capability, whereas India’s approach raises entry barriers, thereby slowing market testing. As competition increases, aligning tariffs with manufacturing goals becomes crucial.
India’s EV sector reflects a broader lesson about industrial strategy. Tariffs can protect domestic firms, but they can also limit scale and investment when applied too early in a technology cycle. The challenge is not whether India should protect its industries but how it can attract foreign investment. The EV market illustrates this tension clearly. India’s ability to develop a competitive manufacturing base will depend on finding a balance between protection and opportunity in a sector that will shape the future of mobility.
