India does not stand to lose anything if the US applies reciprocal tariffs on automobile and auto components because it hardly exports cars to the US. With auto components, the tariff rates range between 5 per cent and 15 per cent which could even be advantageous as compared to China or Mexico.
As per industry sources and veterans, the US wants to apply these tariff so that Tesla can be exported to India, for which India has already rolled out the red carpet with initiatives like the Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI).
Under the Scheme, any foreign company is welcome to invest in India with a minimum investment of ₹4,150 crore ($500 million), for manufacturing of electric four-wheeler (e-4W) and domestic value addition (DVA) of 25-50 per cent in stages.
The best part about this Scheme is that the applicant will be allowed to import completely built units (CBUs) of e-4W manufactured by them at a reduced customs duty of 15 per cent, subject to the conditions as per this Scheme, as compared to 115 per cent earlier.
Under this scheme, EV passenger cars (e-4W) can initially be imported with a minimum cost, insurance, and freight (CIF) value of $35,000, at a duty rate of 15 per cent for a period of five years from the date of issuance of approval letter by Ministry of Heavy Industries (MHI). The maximum number of e-4W allowed to be imported at the aforesaid reduced duty rate will be capped at 8,000 numbers per year and the carryover of unutilised annual import limits would be permitted.
Having said that, the government is not doing this to favour Tesla only, but to attract other global original equipment manufacturers (OEMs) to invest in India’s journey to the electric mobility in future.
That is why the MHI is now also allowing existing global investors to come under this Scheme if they commit to invest $500 million in a brownfield or a separate line for manufacturing EVs in their existing facilities.
And, that is why companies like Mahindra & Mahindra, Mercedes-Benz India and JSW MG Motor have also said that entry of Tesla into India will not impact their EV sales in the domestic market.
Tariff Rates
According to another industry veteran, the tariff rates that India has right now were too high, and it was time to wean off a little bit now.
“The car rates are really very high (in India) and they stick out like a sore thumb. Nowhere in the world they have an industry that claim ‘we are globally competitive, we are the third largest automobile market in the world, but our tariff rates are 100 per cent plus. So, it always comes back to you,” said the person.
Therefore, government should now gradually reduce the tariff rates, especially in the case of automotives, even though there is a minimal export of cars from India to the US, and exports on components is worth around $7.6 billion only, and import from the US was also not significant around $1.4 billion, he added.