US tariffs: Indian auto players submit a plan to reduce import duties on ICE, but not EVs

As part of the ongoing discussions on reciprocal tariffs with the US, the Indian automobile manufacturers have proposed to the government a plan to reduce duties on imports of internal combustion engine (ICE) vehicles but not on electric vehicles (EVs) as reduced duties on EVs would hurt the domestic manufacturers. “There have been a few meetings at the Commerce Ministry to discuss the issues and most of the OEMs (original equipment manufacturers) have come to a conclusion that the government can reduce the import duties for ICE vehicles but not the EVs, as the domestic players have just begun their journey and it would hurt them if import duties are reduced,” a source privy of the meetings told businessline.

Sources said the industry has informed the government that there are already schemes like Scheme for Promotion of Manufacturing of Electric Passenger Cars in India (SMEC) in which global companies can commit investment of minimum of .₹4,150 crore and also can import EVs with a Cost, Insurance, Freight (CIF) value of $35,000 or more at a reduced customs duty of 15 per cent. “Therefore, the SMEC has already given attractive options for the import of EVs into the country. It is just that the OEMs have to make a commitment to invest the minimum amount mentioned in the policy,” said another source from the industry.

Companies like Tesla, that makes only EVs, can also come under that scheme instead of importing directly, they said.

The scheme, under the Ministry of Heavy Industries also mentions that the OEM has to achieve a minimum domestic value addition (DVA) of 25 per cent at the end of the third year and DVA of 50 per cent at the end of the fifth year. According to the industry, this is not challenging any more because of the global chain of suppliers present in the country.

Industry veterans pointed out that the 110 per cent import duties on completely built units (CBUs) of cars (petrol/diesel) whose CIF value is more than $40,000, can be reduced because they are already a very few numbers and also high-end cars. And, in terms of auto components, India does not have to worry because the import is very low from the US. “The tariff rates on auto components vary between 7.5 and 15 per cent, so the average is around 11-12 per cent. Therefore, if the US decides on a reciprocal tariff, the rates will be similar for imports too. Having said that, they are not much interested on components industry and whatever talks that have happened till now between the two countries, components were not part of the discussions,” a senior government official explained.

The official said that the components companies have also told the government that India can reduce the tariffs for the components coming from the US to the same average level of 11-12 per cent because India’s exports to the US is more than $5.5 billion as compared to imports of around $1.4 billion.

“They even agree if India has the capacity to reduce the import duties to zero or 1-2 per cent. Therefore, we do not have any issue on duty structures of the auto components,” the official added. Sources also said that the US President Donald Trump’s recent announcement of 25 per cent tariffs on imports of cars, auto components and light commercial vehicles (LCVs) are unlikely to impact India as much as markets like Mexico, Canada, South Korea and the European Union, as the country’s dependency on the US is low.