India's Tweak In Auto Tariffs For US Imports Will Not Have Sizeable Impact, Says Nomura

Any move by India to reduce or even eliminate import duties on US auto components will not have "sizeable impact" as existing tariff differentials are relatively small and the risk of increased imports from the US is low, according to Nomura.

The Trump administration in the US has been pushing India to remove tariffs on imported cars as part of an upcoming trade deal. Reports suggest the government has been deliberating measures to avoid punitive action from Washington.

India levies import taxes as high as 110% on fully built cars, while the US charges 2.5%. The auto trade between India and the US was just about $100 million in 2023, and has been diminishing.

"Indian suppliers have been able to build a reasonable scale with leadership in certain products such as EV differentials, bevel gears and crankshafts," analysts at Nomura said in a note.

They expect any lowering of auto tariffs will lead to slight increase in competitive intensity in the Indian passenger car and premium motorcycles segment at the higher end.

Elon Musk's Tesla is eyeing to enter the world's third largest car market and the billionaire's close proximity to the US trade policy has put India's tariff practices under the scanner.

On the other hand, the US decision to impose higher tariffs on countries like Mexico, Canada, and China could potentially benefit Indian auto exporters. As these countries face higher tariffs, Indian exporters may be able to capitalise on the opportunity to gain further market share, the brokerage said.

Nomura suggests the Indian government could offer a substantially lower duty for cars made in the US, as long as they are not taking advantage of the system by importing cars or components from other lower-cost-production countries such as Mexico or China.