As Global Car Brands Fight US Tariffs, India Can Forge Ahead

This line from a Hollywood film struck a chord with me last week, for a window is what the Indian auto industry has been handed on a platter.

Soon after the US launched a tariff war on the global economy, reactions from India’s automakers were mixed, most citing negligible ‘full car’ or ‘auto components’ exports to the US. But their golden goose is more than exports.

The domestic market remains a massive opportunity, driven by a diverse middle class. Yes, some are battling their own financial demons, but the majority remain aspirational.

“India needs to make smart policy moves, including on import duties for CBUs (Completely Built Units),” says Kanti Desai at Enam Securities. “That alone is a Rs 30,000-crore opportunity in each quarter, just for passenger cars.”

The math is simple. Even the flatlined numbers released by SIAM (Society of Indian Automobile Manufacturers) for October-December 2024 pegged passenger car sales at 97,186 units per month, close to the 1-lakh-per-month mark. At a conservative per-unit sales consideration of Rs 10 lakh, 3 lakh passenger car sales in a quarter equate to Rs 30,000 crore (around US$ 3.4 billion).

Ironically, shrinking two-wheeler sales in November 2024 — down by 1.15 per cent at 16,04,749 units, against the previous year’s 16,23,399 units — are still heady numbers for any other nation. Also, three-wheeler sales, down 1.32 per cent to 59,350 units in November, compared to 60,143 units YoY, remain significant. That’s because two-wheelers and three-wheelers run on gas. Or they are going electric…

Electric vehicles (EVs) are a fast-approaching wave that promises to overhaul other existing fuel types, be it petrol, diesel, CNG or LPG. Therefore, the clearly-visible shift to EV bodes well. 

Where's The Opportunity For Auto Behemoths?

The answer: Import duties and taxes.

Officials at auto firms spoke to The Secretariat in near unison, on condition of anonymity. “Duties on CBUs are 105 per cent, which were anyway being readied for a hefty cut (for Tesla). If this levy is reduced to the levels that component imports face, the market will take off,” said one. “Cars will fly out of showrooms. Companies, customers, government… everyone will benefit.”

Auto parts like engine and transmission attract a customs duty of 15 per cent, while suspension systems and brakes face lower duties of 10-15 per cent. India is negotiating with many nations (including the US, whose trade delegation visited the country recently) for potential bilateral trade agreements (BTAs). “If the BTAs go through, import duties will be reduced; they could even become zero,” he said.

The bid to reduce tariffs under BTAs is significant, because till as recently as November 2024, India was protecting domestic manufacturers by increasing duties on imported components, ostensibly to create a level playing field and encouraging local manufacturing. “India can make a U-turn on these, similar to the BTAs with Japan, South Korea and ASEAN nations,” an official at another automaker pointed out.

Commerce Ministry officials, admitting that a duties revisit was being studied, added that possible revenue losses were massive. “In FY24, India imported US$ 20.9 billion (Rs 1,81,830 crore) worth of auto components, a 3 per cent rise over the previous year. A duty cut will reduce prices of engine parts, body and chassis, and suspension and braking systems, but it will be expensive,” they said.

Steep Taxes On Vehicles & Registration Charges

Two auto firms, the leaders in the automobile market, complained that the government couldn’t leave it to industry alone to bear the brunt of the global auto crunch. “When an entire sector feels pain, authorities have to step in. Taxes, registration, road tax and others duties imposed at the time of purchase should be lowered. There will be a temporary fall in collections, but sales will rocket.” 

The math is not easy on the eye. Excise and other taxes on new vehicles are high, especially for diesel variants and those valued above Rs 10 lakh. Consider this — if a customer pays Rs 25 lakh for a luxury SUV or car, roughly Rs 11-12 lakh of that goes to the government as taxes. Other charges like TCS (Tax Collected at Source) at 1 per cent also kick in to increase the overall price.

Once purchased, a vehicle needs a registration number and an insurance policy. These are expensive, especially registration. Road tax makes up a significant portion of this, based on the vehicle's ex-showroom price, fuel type (petrol, diesel or CNG), and whether it is company-registered. For a Rs 25-lakh car, registration, insurance and other fees add up to around Rs 3.5 lakh.

These charges cramp sales and determine the variants that are opted for, say the two automakers, pointing out that levies make the overall cost of the car Rs 28 lakh-plus. “Remove these charges and the cost would be just Rs 15 lakh on road, a near 50-per cent saving. Even if levies are reduced by half, sales will jump. In the longer run, the exchequer will make up the shortfall from higher sales.”

Cross-Cooperation To Remain Market-Relevant 

Till the time they have to live with these taxes, automakers are charting their own course to stay relevant. BCM Motoring highlights the case of Maruti Suzuki and Toyota Motors India. “Suzuki has no big-capacity engine to speak of, while Toyota has no small engines that have worked in India. They have co-opted to share platforms and engines, offering the same vehicle under different badges.”

The manifestation of such partnerships is stark. Suzuki’s Baleno is Toyota’s Glanza. Suzuki’s Grand Vitara is Toyota’s Hyrider. Suzuki’s Fronx is Toyota’s Taisor. Suzuki’s Ertiga is Toyota’s Rumion. Toyota Innova Hycross is Maruti Invicto. The partnership also powers Suzuki’s foray into the hybrid and EV sectors, with tech-transfer from Toyota keeping the former’s wheels spinning.

The partnership reminds automakers of similar tech-transfer agreements that kept them operating in the Indian market in the past. “When Indian personal cars suddenly saw gold in diesel in 2010, Fiat came to the rescue, its powertrain finding engine bay space in rival automakers’ cars. The absence of such partnerships has led to many an auto firm’s India exit as well,” one industry-watcher said.

The next few months are critical, a ‘test-period’ that could see Indian auto rise from the ashes of the ongoing global meltdown sparked by the tariff war. What’s needed are government-private sector partnerships and policy moves that stand India out. The global industry has lost its way and needs a happy story. A carrot is up for grabs; nimble minds and feet can win India the day.

(The writer is a veteran journalist and communications specialist. Views are personal)