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High import duties have long been a concern for foreign OEMs operating in India’s automobile sector. Despite the aggressive promotion of the ‘Make in India’ initiative, several critical automotive components continue to be imported.
To accelerate the adoption of electric vehicles (EVs), the Indian government has announced a major decision. On Tuesday, Finance Minister Nirmala Sitharaman, in her address to the Parliament, declared the removal of import duties on 35 key elements used in battery manufacturing. This announcement comes just ahead of the revised US import tariffs, set to take effect on April 2.
US Tariffs and India's Response
On Wednesday, US President Donald Trump announced a 25% tariff on auto imports, a move that could impact global supply chains. In response, India is actively engaged in trade negotiations with the US and is considering reducing tariffs on $23 billion worth of American imports.
Additionally, in the 2024-25 budget, the Indian government allocated ₹2,671.33 crore under the FAME scheme and had already proposed customs duty exemptions for essential minerals required in EV battery manufacturing.
According to Subhabrata Sengupta, Partner at Avalon Consulting, "Certain aspects of the new US tariffs remain unclear. India’s total automobile exports amount to $2.6 billion, but it is yet to be determined which specific HS codes and components will be affected. Gearboxes and axles are likely to attract tariffs, but the status of other components remains uncertain."
Sengupta further added that Indian automotive component manufacturers with operations in the US might mitigate the impact by localizing production. However, the effects of the tariffs could extend beyond the US, potentially impacting Indian exports to markets like Mexico if Mexican auto exports to the US are adversely affected.
This strategic policy by the Indian government aims to strengthen domestic EV production, enhance self-reliance, and reduce manufacturing costs, providing a significant boost to the industry.
