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US President Donald Trump announced a 26% reciprocal tariff on India on Tuesday, effective April 9th. India has been preparing to counter this move since Trump first indicated such an action earlier this year.
The country has a tariff rate that is comparatively lower than those of Taiwan (32%), Vietnam (46%), Thailand (36%), and others.
To minimise the impact, the Indian government has also liberalised rules favouring big tech in the US over the past month.
While some argue that India is not facing any international trade pressure from the US government and may not have a far-reaching impact, a few experts are of the opinion that, in fact, the tariff move will benefit India with its ‘Make in India’ push.
For instance, recently, the Indian government announced plans to remove the 6% tax often referred to as ‘Google tax’, on online digital advertisements, which will greatly benefit major companies like Google and Meta. Additionally, both companies noted favorable outcomes in their legal battles in India.
Recent reports indicate that Tesla is entering India, which could be a game changer for the country’s autonomous vehicle (AV) market. The company plans to hire professionals across various fields and has leased spaces for new showrooms in Mumbai and New Delhi.
Furthermore, Indian telecom giants Jio and Bharti Airtel announced partnerships with Musk’s Starlink, a technology that utilises a constellation of low Earth orbit (LEO) satellites to deliver high-speed internet services.
India Under Pressure From the United States?
In a conversation with AIM, Mohandas Pai, the former CFO and board member of Infosys, mentioned that the aforementioned move by the Indian government was to counter Trump’s tariff plans.
For context, the equalisation levy was introduced by the Indian government in 2016 to tax payments made by Indian businesses to foreign companies for digital advertising services. In 2020, this was also expanded to include a 2% tax on non-resident e-commerce operators for any kind of services provided. This was abolished last year.
“The reduction of the 6% tax is a direct result of the Trump tariff threat,” said Pai. “This was because it was deemed as a non-tariff barrier, and the [Indian] government has demonstrated its commitment to having a free trade agreement with the U.S,” he added. He indicated that abolishing this tax will benefit the relationship between the two countries.
However, some industry experts believe that the United States government may be exerting pressure. An investor, speaking to AIM on the condition of anonymity, stated, “Clearly, there is pressure from the U.S., which any government will obviously not agree to publicly.”
Besides, Google and Meta saw positive results regarding their legal battles in India. In 2022, the Competition Commission of India (CCI) found that Google required app developers to use Google’s proprietary billing systems for in-app purchases only. However, in March, the National Company Law Appellate Tribunal (NCLAT) upheld CCI’s allegations but reduced the penalty to 50%.
Also, in November last, CCI imposed a ₹213.14 crore penalty on Meta. This was due to WhatsApp’s 2021 privacy policy update, which requires users to accept data sharing with Meta. However, NCLAT directed WhatsApp/Meta to deposit 50% of the penalty, and the previously imposed five-data sharing ban was lifted.
Viswanathan KS, an independent digital transformation advisor, told AIM that he does not subscribe to the narrative suggesting that the United States government is applying pressure. He asserts that these are simply compliance issues and interpretations of the law and its legal provisions.
“Obviously, each of the affected parties has gone to court and has received an interpretation,” he said, indicating that whatever law the new interpretations bring must be accepted and taken forward.
“Fixing the interpretation once and for all is a good thing for the country. I am happy to happen early in the game, rather than discovering so late, when so many people have invested in India,” he added.
So What About Make in India?
In addition to Tesla’s entry, Starlink and other favourable developments for U.S. companies raise the critical question of whether these changes will hinder the ‘Make in India’ initiative and the country’s long-standing ambition to produce homegrown products.
Pai mentioned that these developments could, in fact, benefit ‘Make in India’.
“Tesla will buy a lot of components from our [India’s] vendors, to improve the technology in the country,” said Pai.
Having said that, the Indian government imposes high import tariffs, reaching up to 100% on fully assembled EVs imported to India. This has been a contentious issue, which President Trump has talked about time and again with Indian counterparts.
A new policy indicates that companies that set up and invest at least $500 million in manufacturing facilities for EVs will be allowed limited imports (fewer than 8,000) of cars priced at $35,000 and above, at a lower customs duty of 15%.
Recently, it was reported that Tesla’s strategy to enter the country includes a proposal to build a manufacturing plant with an annual capacity of 500,000 vehicles at an investment of $2 – 3 billion.
“Tesla may only import in the beginning because they want to test the market, but I hope it ties up with companies like Tata, Mahindra, or somebody else to manufacture them,” Pai added.
Additionally, Pai believes introducing Starlink will benefit national security interests, especially in the fight against terrorism. He also noted that it is perhaps challenging for organisations in India to build infrastructure for a technology like Starlink, given the investments it needs.
“India should forge a close partnership with the United States, reduce and eliminate all tariffs for US goods to come here,” he further opined.
Meanwhile, Ashok Chandak, president of the India Electronics and Semiconductor Association (IESA), told AIM, “Negotiating a bilateral trade deal could ease pressure, while adjusting import tariffs on select US goods may address concerns.”
“Fortunately, both India and the US are eager to expand bilateral trade to $500 billion, creating opportunities for a mutually beneficial agreement,” he added.
