By Afridi Ahmed Courtesy Modern Diplomacy.

Tata Motors, India’s leading automobile family, along with DIMO, launched a new range of passenger vehicles (Internal Combustion Engine (ICE) vehicles and Electric Vehicles in the country.

On 12 March 2025, Tata Motors, India’s leading automobile family, along with DIMO, a Sri Lankan conglomerate and the only authorised distributor of Tata Motors in Sri Lanka, launched a new range of passenger vehicles (Internal Combustion Engine (ICE) vehicles and Electric Vehicles (EV)) in the country. In the launch event, Tata Motors successfully introduced a range of SUVs – the Tata Punch, Tata Nexon, and Tata Curvv. The highlight of the launch event was Tiago.ev, an electric hatchback, already available in the markets of India, Nepal and Bhutan, with various variants and plans to expand in other countries.

This strategic move aligns with Tata Motors’ commitment to sustainable electric mobility accessible to Sri Lankan customers, revolutionising EV vehicles in the island nation. After the economic crisis the re-entry of Tata Motors, provides Sri Lanka with a fresh inflow of trade and investment, supporting its auto sector.

Historically, before Tata Motors’ investment in 2025, providing reliable transportation in Sri Lankan markets. India and Sri Lanka have already engaged in various partnerships or collaborations within the automobile sector, especially through Ashok Leyland and CEAT Kelani Holdings, a joint venture between India’s CEAT and Sri Lanka’s Kelani Tyres, formed CEAT Kelani Holdings.

Ashoka Leyland, through its subsidiary Lanka Ashok Leyland (LAL) 1983, a joint venture between Ashok Leyland of India and the Lankan public sector company, Lanka Leyland Ltd. The company assembles and distributes commercial vehicles including trucks and buses strengthening public transport infrastructure in the country. In 2023, Ashok Leyland signed a pact with the Sri Lanka Transport Board (SLTB), a state-owned single-largest bus transport provider to deliver 500 buses. 

Tata Motor’s EV launch in Sri Lanka in partnership with DIMO is more than a business decision—a strategic step to strengthen India’s Economic Diplomacy. This expansion strengthens India-Sri Lanka trade ties, counters China’s growing influence in the region and positions India as a key player in EV markets in South Asia.

India-Sri Lanka Economic Ties: A Strategic Reset?

After the economic crisis, this partnership Tata Motors and DIMO, appears to match India’s broader strategic goals in South Asia, especially in Sri Lanka. In the recovery efforts, India was among the major creditors, stabilising the economy through financial aid, reflecting the change in regional dynamics. India played a constructive role and extended humanitarian support worth USD 4 billion to Sri Lanka in line with its ‘India’s Neighbourhood First’ policy. 

New Delhi focused more on strengthening economic ties with Sri Lanka after the presidential election in the country under the Anura Kumara Dissanayake (AKD) leadership to deepen its influence and reduce dependency on China. PM Modi held bilateral talks with President Dissanayake on December 16, where the two leaders discussed diverse issues. The joint statement released indicated a comprehensive discussion strengthening the bilateral relationship between India and Sri Lanka, and it highlighted the commitment to work in a direction to renew bilateral cooperation across multiple sectors including energy, capacity building, connectivity and defence.

Similarly, PM Modi announced that both nations would conclude a defence cooperation agreement on hydrography, giving relevance to the role of the Colombo Security Conclave, a major platform for regional peace, security and development. This cooperation will enhance maritime security, counter-terrorism, cyber security, fight against smuggling and organised crime, humanitarian assistance and disaster relief.

The number of agreements signed between New Delhi and Colombo was limited Yet, significant progress was made to work on connecting the power grids between both, India and Sri Lanka and supply Liquefied Natural Gas (LNG) to Sri Lanka’s power plants.

The recent, Tata Motors re-entry reflects positive moods in the economic strategy of the newly formed Sri Lankan AKD-led government after the 2024 presidential elections, further intensifying India’s economic re-engagement, following investments in major sectors, including energy, ports and infrastructure.

The China Question: Economic Competition and Strategic Balancing

Sri Lanka appears strategically important to China for trade and infrastructure connectivity in the Indian Ocean Region (IOR) under China’s ambitious Belt and Road Initiative (BRI) after India refused to endorse the BRI considering territorial integrity.

China’s involvement in Sri Lanka has drastically grown after the Hambantota Port incident in 2017, when a Chinese company acquired the port on a 99-year lease for USD 1.12 billion, providing access to the Indian Ocean. Although the same year, clashes broke out in southern Sri Lanka between protestors and government supporters, rallying against the port deal with a Chinese company. Local leaders and Buddhist clergy also voiced against the deal, urging the government to stop leasing the port. However, then-Prime Minister Ranil Wickremesinghe defended the port deal citing debt burden and blaming the previous administration. From then, Chinese companies heavily entered and invested in the Sri Lankan Markets particularly in the electric vehicle sector.

In 2017, Sri Lanka’s Micro Cars signed a joint venture with China’s Beijing Automobile International Corporation (BAIC) to assemble electric vehicles in the country, marking the beginning of a Chinese EV expansion in Sri Lanka.

In 2023, John Keells Holdings (JKH), a Sri Lankan conglomerate, partnered with BYD, a Chinese leading manufacturer of new energy vehicles having a presence in over 70 countries, for the New Energy Vehicles (NEVs) in the Sri Lankan markets. These strategic collaborations and Chinese EV companies setting a foothold in advancing sustainable mobility and transportation in Sri Lanka. The reason behind the market reach expansion of BYD in the Lankan Markets is that it offers a range of EVs tailored to consumer needs, from a budget-friendly to a luxurious lineup, taking special steps on advanced safety features including proprietary blade battery techniques vehicle safety and efficiency–offering a competitive edge in battery performance.

Tata Motors’, in its recent launch, introduced EV models like the Tata Punch, the Tata Nexon, and the Tata Curvv, focusing on sustainable electric mobility and accessibility to Sri Lankan customers. As an established brand in South Asian markets, Tata Motors benefits from its reliable services and existing customer base in the Lankan markets. While Chinese EV companies like BYD stand strong and tall in Sri Lankan EV markets, catering to the diverse market customers, a luxury sedan to the BYD Ais TTO 3, a versatile and family-friendly SUV. Where Tata Motors entered the EV market with more limited models targeting mid-range consumers.

The market strategy of Tata Motors primarily appears less local while BYD enjoys a partnership with JKH, provides robust local market access and infrastructure support. Although Tata Motors’ entry can be seen as a part of broader Indian corporate push to Chinese market dominance.

Why do Sri Lankan markets matter?

The recent State visit of Sri Lankan President AKD shows an inclination towards Chinese companies and deepens the friendship between the two nations, and the highlight of the meeting was a discussion with BYD representatives signifying inclination towards Chinese EV companies for sustainable mobility and transportation. Lankan President in a dialogue discussed lifting import restrictions, BYD will export NEVs to Sri Lanka, providing them with net zero-emissions technologies and strengthening their commitment to sustainable economic recovery for all Sri Lankans in post-restriction.

The island nation, Sri Lanka, sits in the Indian Ocean making it an important player in regional power dynamics, especially for India. In the Indian Ocean, China remains contentious over issues like ports, infrastructure, and trade, having economic and political influence in the country, further intensifying the India-China rivalry mainly due to Sri Lanka’s balancing act between the two, taking opportunities of financial aid and trade benefits.

The Colombo Security Conclave (CSC) – a much needed security group in the region, already reflected India’s strategic push in the Indian Ocean. As China’s aggressive actions are growing, as seen against the Philippines, clearly state its coercive intentions to seek control in the Indo-Pacific. By expanding Indian businesses like Tata Motors, New Delhi strengthens economic ties with Sri Lanka.

The diversified geopolitical strategy, under the leadership of AKD, shows a policy balancing act that clearly wants Indian economic investments for recovery but cannot afford to corner a major creditor and investor, China.

In a strategic way, by boosting Indian business presence in Lankan markets, india aims to reduce dependency on Chinese investments and engagement in the region. Hence, the auto industry, particularly EV vehicles, the emerging EV trends in the global markets, can open a new front in India-China Economic competition like telecom and electronics.

India’s Soft Power Vs. China’s Debt-Driven Model

China’s influence in Sri Lankan markets often reflects its unsustainable loans for infrastructural projects, gaining strategic and military influence, while India’s approach is to promote business investments, trade agreements and sustainable partnerships. India strongly opposes any coercive activity in its immediate neighbourhood and pursues soft economic power with the intention of mutual development rather than coercive financial strategies, Tata Motors’ entry is the classic example of pure economic engagement creating a sustainable transport environment in Sri Lanka.

However, there are many challenges for Tata Motors and competition from already well-established Chinese auto companies in the Lankan markets. The major challenge is Sri Lankan taxation policies and economic uncertainty, especially after the recent economic crisis. In February 2025, the AKD government proposed to withdraw the tax exemption previously granted to profits and income derived by companies from the export of services and foreign sources, subjecting them to a concessionary tax rate of 15%. Increasing tax revenue would probably be the government’s strategy to recover from the economic downturn, which may affect foreign business and the inflow of investments.

If India is successful in sustaining this competition and economic uncertainties in the EV sector, it can dominate Sri Lanka’s clean mobility market, it will gain long-term leverage in the industry. If Tata Motors is successful, will other Indian Businesses follow? Will China respond with aggressive investments in Sri Lanka?

Lastly, Tata Motors’ expansion is no longer merely a business decision but a part of India’s strategy in setting up an economic foothold in Sri Lanka, reshaping economic dynamics in South Asia and giving India leverage in regional trade. The Indo-Pacific is witnessing a transition where economic investments are as strategic as military alliances, even more than that, in this emerging sustainable energy-oriented world.