How tariff reductions could impact India’s automotive industry? Sunil Subramaniam explains

Sunil Subramaniam: First of all, yes, there will be an increased competitive element to the Indian automotive industry and so that will mean that the margins will be more under pressure. But that being said, I think the quality of the American cars will be at a very high range, so that is where and if you see a lot of imported cars already sold in India and they would compete within that, not at the mass market level that a Maruti Suzuki or a Mahindra does. It will be more at the higher end.So, I would say that to that extent it will be a more limited impact, but undoubtedly there will be an impact. And overall, the fact that we are going to be reducing tariffs means that Indian industry has become more competitive if they have to compete then because the support of tariffs will not be there.

So, those companies which are able to quickly improve productivity can benefit, but those which lag behind will get hurt. So, clearly there will be a separation of the men from the boys in the Indian land. Those who are so far surviving on tariff protection will need to up their productivity whether through use of AI, robotics, or higher skill level labour.

The third aspect which you said from the negative perspective is that we will be shifting some of our oil purchases which we used to buy from the Middle East and from Russia to America. The key thing is the price of the oil. So, we used to drive a very good bargain with Russia because of the sanctions they were selling cheap to us.Now, with US in an open market scenario, I would say that maybe the price of oil may go up for us, but a counter to that is that Mr Trump would not want oil prices to rise for US consumers and I do not think he can maintain a differential price for domestically sold gas and exported gas.

So, if oil prices are going to trend down because of the increased supply by revising the price, Mr Trump’s drill baby drill phrase comes to mind. So, if he is going to increase the supply, then oil prices should come down. So, we have to wait and watch these interesting scenarios as they play out.

Sunil Subramaniam: See, I would say that it is not all negative because China is the biggest exporter of pharmaceuticals to the US and tariffs on China are going to be far higher than on India. So, while we may lose some in terms of margins, we could make it up by volume by getting a shift from the Chinese to the Indian thing.

So, I think that you cannot just say that just because those tariffs are coming, their margins will go down, the volumes could make up for it. So, if you are going to study this company by company to see how they are responding to this. The second is that China and India could come into an agreement where part of the production happens in China, then shifted to India, again those differential tariffs could work in our favour.

It is very hard to see the oil prices like I said right while it on the surface looks like we would not get cheap oil from Russia because I believe Mr Trump will drive oil prices down and he is already talking to Saudi Arabia to increase their production to bring down oil.

I think that if oil eases, then a whole host of industries like even if the Brent crude price goes down from 75 to 65 is a whole sort of downstream industry right from paints to tyres to everything will benefit.

One cannot just say that this is all going to be negative, I think the volume increase and everything else based if we are going to double to $500 billion, then clearly a lot of Indian export companies are going to be also benefiting.

In turn for buying oil if we do not currently buy from the US, if we are going to be able to export more stuff that will still benefit.

It is very hard until the nitty-gritty and the fine print comes out of all of these decisions to really see. In fact, I see that the supply of nuclear equipment probably a huge positive for that sector in India in terms of manufacturing, so that is again a very positive which come of this and when they come to defence, also most likely there will be a localisation of the defence, so there could be a 70-30 where the American things are brought in here and then assembled in India which will lead to job creation around the finishing product, so that 30% local manufacturing thing could come to our aid.

All of this could even be a big boost to the PLI scheme. So, I would say that overall for the economy this whole meeting between Modi and Trump in the long run is very good.

It politically gets closer to America, it is good because the Quad arrangement between Australia, Japan, India is a counter to China and India plays an important role, so Mr Trump definitely will have a soft corner towards us from a political perspective.

I would think overall the visit has been very positive for the broad Indian economy and GDP growth. Individual sectors like there will be some winners and some losers and only time will tell how they play out that piece.