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The reciprocal tariff threat by US President Donald Trump on automobiles (along with many other sectors) from India has been shrugged off by local vehicle makers since India’s vehicle exports to the USA are negligible. Any benefits or downsides of these tariffs would likely favour American OEMs such as Harley Davidson, Ford Motor Co, General Motors, and Tesla Inc., since their vehicles would need lower import duties in India to compete with locally manufactured vehicles. Citing high tariffs from Brazil, India, and China, Trump announced yesterday in a joint address to the US Congress that the plan for reciprocal tariffs would come into effect on April 2, 2025.
Despite putting up a brave front, Indian vehicle OEMs remain curious about the shape and scope of the incoming tariffs. An industry representative said that it would help if India knew which vehicle categories—cars, two-wheelers, three-wheelers, commercial vehicles—the tariffs would be imposed on. Additionally, there is uncertainty about whether the new tariff regime would include just ICE (petrol, diesel) vehicles, just electric vehicles, or be fuel-neutral.
“India’s commerce minister and officials are currently in the US, negotiating a Bilateral Trade Agreement (BTA) between the two countries. The government has not had any interaction with the industry till now about the reciprocal tariff threat, and we are waiting for some communication,” said the representative.
India and the USA have started talks on the BTA and expect it to be signed a few months from now. Unlike negotiations during a Free Trade Agreement (FTA), a BTA usually focuses on the total trade between the two countries and is not discussed item by item.
“During BTA talks, there is no tariff line-wise discussion on each item traded between the two negotiating countries. For example, within just passenger cars, India’s tariff lines differentiate between petrol and diesel engines. The second level of differentiation is engine capacity metrics: below 1500 cc, between 1500 cc and 3000 cc, and above 3000 cc, for both petrol and diesel powertrains. Similar, multiple categories exist for two-wheelers and other vehicle segments. This level of tariff line-wise complexity should not exist during BTA negotiations,” the industry representative explained.
India’s OEMs are expecting a detailed briefing from the commerce ministry after the delegation, led by Minister Piyush Goyal, returns to India.
In any case, India has already reduced tariffs on high-end motorcycles. Finance Minister Nirmala Sitharaman announced during her Budget speech last month that import duty on motorcycles with an engine capacity of up to 1600 cc, which are imported as completely built-up (CBU) units, will be reduced to 40 per cent from 50 per cent earlier. Duty rates for imports of semi-knocked down kits and completely knocked down kits have also been slashed. This reduction should ease the duty burden on OEMs such as Harley Davidson, fulfilling a key demand by the USA.
Additionally, the Scheme for Promotion of Manufacturing of Electric Passenger Cars (SPMEPC), which was notified last year, already allows the import of high-end electric cars at a concessional duty of 15 per cent versus about 70 per cent otherwise. This policy was widely seen as being partial to Tesla, since its contours were almost identical to demands made by Tesla earlier.
However, the concessional duty rate can be availed only if the importer commits to making vehicles in India, and detailed guidelines of the policy have still not been released. Meanwhile, there has been much speculation about changes in the scope of the policy, with the possible inclusion of OEMs already manufacturing in India under its ambit being a significant potential change. Nonetheless, neither Tesla nor any other global OEM has yet shown interest in manufacturing electric passenger cars in India under this policy.
Is the Modi government awaiting clarity on the BTA before finalising the contours of SPMEPC?
The industry representative quoted above mentioned that this policy is currently “not a hot topic” within the Ministry of Heavy Industries (MHI). A senior government official previously stated that policy guidelines can only be finalised after an inter-ministerial consultation, which could take another month or two. This official declined to comment on the fallout of any reciprocal tariffs on this policy.
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The bilateral trade negotiations between the US and India aim to clarify which vehicle categories and fuel types may be impacted by these tariffs.
Read by: 100 Industry Professionals
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The reciprocal tariff threat by US President Donald Trump on automobiles (along with many other sectors) from India has been shrugged off by local vehicle makers since India’s vehicle exports to the USA are negligible. Any benefits or downsides of these tariffs would likely favour American OEMs such as Harley Davidson, Ford Motor Co, General Motors, and Tesla Inc., since their vehicles would need lower import duties in India to compete with locally manufactured vehicles. Citing high tariffs from Brazil, India, and China, Trump announced yesterday in a joint address to the US Congress that the plan for reciprocal tariffs would come into effect on April 2, 2025.Despite putting up a brave front, Indian vehicle OEMs remain curious about the shape and scope of the incoming tariffs. An industry representative said that it would help if India knew which vehicle categories—cars, two-wheelers, three-wheelers, commercial vehicles—the tariffs would be imposed on. Additionally, there is uncertainty about whether the new tariff regime would include just ICE (petrol, diesel) vehicles, just electric vehicles, or be fuel-neutral.“India’s commerce minister and officials are currently in the US, negotiating a Bilateral Trade Agreement (BTA) between the two countries. The government has not had any interaction with the industry till now about the reciprocal tariff threat, and we are waiting for some communication,” said the representative.India and the USA have started talks on the BTA and expect it to be signed a few months from now. Unlike negotiations during a Free Trade Agreement (FTA), a BTA usually focuses on the total trade between the two countries and is not discussed item by item.“During BTA talks, there is no tariff line-wise discussion on each item traded between the two negotiating countries. For example, within just passenger cars, India’s tariff lines differentiate between petrol and diesel engines. The second level of differentiation is engine capacity metrics: below 1500 cc, between 1500 cc and 3000 cc, and above 3000 cc, for both petrol and diesel powertrains. Similar, multiple categories exist for two-wheelers and other vehicle segments. This level of tariff line-wise complexity should not exist during BTA negotiations,” the industry representative explained.India’s OEMs are expecting a detailed briefing from the commerce ministry after the delegation, led by Minister Piyush Goyal, returns to India.
In any case, India has already reduced tariffs on high-end motorcycles. Finance Minister Nirmala Sitharaman announced during her Budget speech last month that import duty on motorcycles with an engine capacity of up to 1600 cc, which are imported as completely built-up (CBU) units, will be reduced to 40 per cent from 50 per cent earlier. Duty rates for imports of semi-knocked down kits and completely knocked down kits have also been slashed. This reduction should ease the duty burden on OEMs such as Harley Davidson, fulfilling a key demand by the USA.
Additionally, the Scheme for Promotion of Manufacturing of Electric Passenger Cars (SPMEPC), which was notified last year, already allows the import of high-end electric cars at a concessional duty of 15 per cent versus about 70 per cent otherwise. This policy was widely seen as being partial to Tesla, since its contours were almost identical to demands made by Tesla earlier.
However, the concessional duty rate can be availed only if the importer commits to making vehicles in India, and detailed guidelines of the policy have still not been released. Meanwhile, there has been much speculation about changes in the scope of the policy, with the possible inclusion of OEMs already manufacturing in India under its ambit being a significant potential change. Nonetheless, neither Tesla nor any other global OEM has yet shown interest in manufacturing electric passenger cars in India under this policy.
Is the Modi government awaiting clarity on the BTA before finalising the contours of SPMEPC?
The industry representative quoted above mentioned that this policy is currently “not a hot topic” within the Ministry of Heavy Industries (MHI). A senior government official previously stated that policy guidelines can only be finalised after an inter-ministerial consultation, which could take another month or two. This official declined to comment on the fallout of any reciprocal tariffs on this policy.