If the deal goes through, it will be latest step in Ford CEO Jim Hackett's drive to staunch the bleeding from the firm's overseas subsidiaries.
The proposed deal would see Ford put most of its Indian assets into the new firm, of which it would own 49 per cent. Both companies will have equal board representation and voting rights in the joint venture.
Under the current proposal, Ford is seeking to keep an export-focussed engine factory and its business services division as wholly-owned entities.
It's unclear how much Mahindra would pay Ford for its assets, but it's understood to be significantly less than the roughly US$2 billion ($3 billion) it has invested over recent years.
Despite its investment, Ford has struggled to gain a significant foothold in what was once one of the world's fastest growing automobile markets.
Ford's current market share is under three per cent, and it lags well behind leader Suzuki, which is responsible for at least half of all new cars sold there.
Ford isn't the only automaker who has failed to break Suzuki's dominance, with Hyundai the only company making significant headway.
Above: Ford Ka.
Chevrolet retreated from India in 2017, while Toyota has bought a minority stake in Suzuki and entered into a technical alliance with the smaller manufacturer, with rebadged Suzukis now being sold in Toyota dealerships and Toyota's excess production capacity being used for Suzuki models.
While Ford has remained consistently profitable over the past few years, most, if not all, the black ink is thanks to the American market, where the F-150 and large SUVs have very profit margins.
The company's overseas subsidiaries, including its South American, European and Chinese operations, have bled money.
In Europe the Blue Oval is closing factories and shedding unprofitable model lines, such as its people movers. For China Ford is leaning more heavily on its local manufacturing partner for product.