When US President Donald Trump announced reciprocal tariffs on a host of nations on ‘Liberation Day’, India was also singed. Not burned maybe, but singed. There has been a lot of commentary about this, and one of the industries that might get impacted by the rise in tariffs for Indian imports is the automobile components industry.
But here is the funny thing. Some of the larger Indian automotive component makers like Samvardhana Motherson already have manufacturing plants in Canada and Mexico, the US’ neighbours where the Trump administration is working out tariffs, which might take a while given the interdependence of the three nations.
There is also the fact, noted in a release by the Automotive Component Manufacturers Association of India (ACMA), that autos and auto parts as well as steel and aluminium articles were already covered by the 25 per cent tariffs announced by the US last month. “ACMA remains hopeful that the ongoing bilateral negotiations between the Indian and U.S. governments will lead to a balanced resolution that benefits both economies,” said ACMA president Shradha Suri Marwah.
Wait and watch
Reading the financial papers, it seems an India-US trade deal could be concluded in a few months. And among the key bits being negotiated? Tariff cuts on electric vehicles. Read Elon Musk and his company Tesla.
According to Reuters, Indian auto manufacturers have expressed concern over the tariff cuts and have requested for a gradual reduction to 30 per cent rather than dramatic cuts. Current import duties on fully-imported vehicles range from 70-125 per cent in India.
A senior executive at an automotive company told me that they expect any such trade deal between India and the US to set a precedent with regards to negotiations with the European Union on a Free Trade Agreement where automobiles are also on the table.
Indian automakers such as Tata Motors and Mahindra & Mahindra have invested heavily in their electric vehicle plans while Hyundai, Kia, Maruti Suzuki, and Toyota have also launched, or are on the verge of launching, their ‘Made In India’ EVs in the coming months.
Reducing duties on US imports might not have any immediate impact on the Indian auto industry. Tesla, for example, does not produce any right-hand drive vehicles in the US. Some benefits might accrue to automakers like Mercedes-Benz who manufactures its electric SUV range in Alabama.
But Santosh Iyer, MD and CEO, Mercedes-Benz India, told me that since most of these cars are already assembled in Chakan, Maharashtra, and because auto kits attract lower taxes (25-35 per cent), shifting to imports would not be feasible. However, he added, one would have to wait and watch to see the final tax and price implications on imported cars before any decision can be made.
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Checks and balances
Having been part of this industry for over two decades, I genuinely believe that India should reduce some of the duties on imported vehicles which are currently ridiculous. These duties were brought to protect local manufacturing and have played a role in enhancing domestic productivity and providing employment.
That said, I also believe that the auto industry has been slow to adapt. There is no doubt that the lack of government support has been an issue, unlike China. The Production Linked Incentive (PLI) scheme is still new for the automotive industry. Far too much local research and development was focussed, wrongly in my opinion, on lowering cost to create ‘cheap’ products—products that the Indian market rejected.
It’s not that there is no good automotive R&D in India. Contrary to Commerce Minister Piyush Goyal’s recent statement where he accused Indian start-ups of not doing fundamental R&D, I have seen start-ups like Ather Energy and Exponent Energy take massive strides in development. But this progress, Ather’s CEO Tarun Mehta explained to me, happened majorly because India is the largest market for two- and three-wheeler vehicles in the world and intense competition meant Indian companies had little option but to innovate.
The automobile sector not only provides India a massive industrial base, one that is important to have in these uncertain geopolitical times, but it also forms a large part of the country’s economy, directly contributing about six per cent to the GDP and employing around 32 million people directly and indirectly.
Personally, while mollifying Trump might make sense at a level, officials negotiating the deal should tread carefully. Sure, Indian customers deserve the best products available at a decent price, although the top electric vehicles are currently made in China. A deal with checks and balances should be reached to protect Indian manufacturing capabilities and companies. Trump wants manufacturing to return to the US, which is laudable, but it should not come at the expense of the Indian auto industry and its jobs.
@kushanmitra is an automotive journalist based in New Delhi. Views are personal.
(Edited by Aamaan Alam Khan)