India’s pharmaceutical and automobile industries are bracing for potential disruptions as former US President Donald Trump reiterates his stance on imposing 25% reciprocal tariffs on imports. This move could significantly affect Indian exports.

However, Former Ambassador to the WTO, Jayant Dasgupta, believes that while the tariffs would have an effect, the overall impact may not be as severe due to the US’s heavy dependence on pharmaceutical imports.

“The pharmaceutical exports will suffer if a 25% tariff is levied on Indian imports. However, the US is a net importer of pharmaceutical products and also sources a large number of active pharmaceutical ingredients (APIs) from China. Imposing such tariffs would not necessarily help American manufacturers bridge the import gap,” Dasgupta explained. He added that since the tariffs would apply to all countries, Indian exporters would still operate on a level playing field.

On the automotive front, Dasgupta downplayed the potential impact on India, as automotive trade between the two nations remains limited. However, Tesla’s proposed entry into India has sparked discussions about tariffs and manufacturing commitments.

Speaking to CNBC-TV18, Former Commerce Secretary Anup Wadhawan said, “Musk is clearly keen to enter India under the existing framework, where fully assembled cars attract 110% or 70% duties, semi-knocked-down units 35%, and fully knocked-down units 15%. Tesla is likely to begin operations by importing cars under the reduced duty window that allows 8,000 fully assembled imports per year in exchange for a $500 million investment,” Wadhawan noted.

Trump, however, has said that it is unfair to expect Tesla and Elon Musk to build a factory in India to avoid tariffs. He also reiterated claims that India imposes the highest tariffs in the world on automobiles, making it “impossible to sell a car” in the country. Despite this, Tesla appears to be moving forward, with plans to start sales in India by April and has already zeroed in on two locations – one in Delhi’s Aerocity and the other in Mumbai’s BKC.

Edited Excerpt from the Discussion:

Q: What’s your sense? Do you think India, which has now begun inter-ministerial consultations on that bilateral trade agreement with the US, will be some significant concessions that we must give the United States? Which are some of those early areas where we could have to make those concessions?

Wadhawan: The trade agreement, in a sense, takes off from where things ended in President Trump’s last term. We were discussing various trade issues. They had access issues on various tariff lines. We had similar ambitions and other concerns from them, including visas and totalisation of Social Security contributions. So, in a sense, that process was interrupted. So, this takes off from there.

Certainly, some concessions will be extended. But, by definition, almost a trade agreement is balanced and reciprocal, to use a term used by President Trump. So, certainly, we will be giving some concessions, but, in return, we will have our own wants and ambitions. And those will get fulfilled, too. The concern is that this ominous sort of reciprocal tariff issue is spoiling the turf, so to speak. Our position should be that if this reciprocal tariff issue has to be addressed. It has to be discussed outside the trade agreement. Whatever concessions we give in return for whatever concessions we get from them must be on an MFN basis, and American companies need not necessarily benefit. So, I think the US should not go down this reciprocal tariff route. And since we’ve agreed to have a negotiation for a kind of trade agreement, that is the route to follow. Then all those concessions will be bilateral, and American companies will benefit.

Q: Today, Donald Trump said that he would like to impose 25% tariffs on the auto and pharmaceutical sectors as well. How will this impact the Indian industry, especially the pharmaceutical sector? 38% of our exports from pharmaceutical manufacturing go to the US.

Dasgupta: Pharmaceutical exports will suffer if a tariff of 25% is levied on Indian imports. However, the point is that the US is a net importer of pharmaceutical products and imports many active pharmaceutical ingredients and APIs from China. These 25% tariffs will not enable the American pharma industry manufacturing in the US to fill the gap between the import requirements and their domestic production.

This 25% reciprocal tariff, which President Trump has been talking about, will be imposed on all countries. That will be a level playing field for India and other pharmaceutical exporters to the US. So, the impact would be there, but it would not be enormous.

As far as automobiles are concerned, India is not a major automotive exporter to the US. The US also does not export much by way of automobiles to India. So, that is not going to matter very much.

Regarding the conversation about Tesla, Tesla has been trying to enter India on this completely knocked down or semi-knocked down condition and assemble cars in India. The Indian government legitimately said that we can give you concessions, but you will have to provide a substantial part of a manufacturing roadmap in India. And that is what Elon Musk has been shying away from.

Q: Tesla has had an on-and-off relationship, conversation with the Indian government over tariffs, over an India entry. This is not the first time they’ve started hiring for the Indian market. Do you think it makes sense for them to import and sell cars in India right now rather than manufacturing them? Considering that their global EV sales have declined by 1%, there has been a massive drop in sales for them in countries like Germany and France. Then you’ve got Donald Trump. He just told Fox News that Tesla could go ahead and manufacture in India, but that would be very unfair to America. Looking at all the circumstances, do you think Musk would only want to sell in India for the moment?

Wadhawan: It is clear that Musk is keen to enter India and enter within his current framework. And that framework is that if it’s a fully assembled car, it comes in at 110% duty or 70% duty. Semi-knocked down, it is 35% and fully knocked down, it’s 15%. So that is one window through which he comes in. But I suspect he wants to go whole hog and eventually manufacture.

So, he comes in with that $500 million investment in a three-year window, which allows him to import 8,000 cars per year, fully assembled at 15% duty. Eventually, he will have to add 50% value in five years. There is some talk of Tesla planning to invest $30 billion in battery manufacturing and $3 billion in developing a small car or a cheaper version, valued at around $25,000. So, I suspect he might come in right now in the window based on semi-knocked down or entirely knocked down assembly operations, but then that will take time to set up. Meanwhile, to the extent he has to import fully built-up cars, then that 15% window with $500 million investment is open to him. So, my suspicion is, and given what the grapevine is, he is keen to enter in that window- invest and start manufacturing.

The fact that he’s advertised these positions means he is going ahead and okay with whatever the policy framework is. Notwithstanding what President Trump is saying, we can’t take that very seriously because he would like all manufacturing to happen in the US. However, at another level, Musk cannot ignore the Indian market, and to the extent he’s going forward now, he has some comfort with the framework that exists today by way of policy and regulations in India.

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