Mumbai- Indian auto component manufacturers are expected to gain greater entry into European markets along with enhanced pricing competitiveness under the proposed India-European Union Free Trade Agreement (FTA), according to a report released on Friday.
The report by ICRA stated that tariff rationalisation and preferential market access under the agreement are likely to improve pricing advantages and create stronger sourcing opportunities with European original equipment manufacturers (OEMs).
Highlighting the EU’s status as a major global automotive manufacturing hub, the report noted that improved trade conditions could allow Indian suppliers to strengthen their role in international supply chains. It further stated that Indian manufacturers may be better positioned to compete with suppliers from countries that currently benefit from lower tariffs in the European region.
At present, automobiles and auto components contribute roughly 3 per cent of India’s total exports to the EU, indicating significant scope for growth as trade restrictions are eased.
According to ICRA, the FTA proposes a gradual reduction in import duties on completely built units (CBUs) originating from the EU. Tariffs, which currently stand as high as around 110 per cent, are expected to fall to nearly 10 per cent under specific price brackets and quota systems.
The reduction in tariffs is anticipated to primarily impact premium vehicle segments, while the mass-market passenger vehicle segment is likely to remain largely protected. The report also mentioned that tariffs on electric vehicles (EVs) are expected to remain unchanged in the initial phase, allowing domestic EV supply chains adequate time to adapt to the changing trade environment.
Additionally, the agreement could encourage greater investments in precision engineering, electronics integration, and specialised component production. It may also promote technological partnerships and product diversification between Indian and European automotive companies.
The report emphasised that export-oriented mid-sized firms and MSMEs involved in specialised components and aftermarket products could benefit significantly, as global automotive procurement strategies increasingly diversify sourcing bases.
On the import front, the report stated that tariff reductions are expected to mainly support premium internal combustion engine (ICE) vehicles, while small and mid-range car segments are likely to remain mostly unaffected.
Under the agreement, the EU will provide India with zero-tariff access to 97 per cent of its tariff lines, covering approximately 99.5 per cent of India’s export value. In return, India will reduce or eliminate tariffs on nearly 92 per cent of its tariff lines.
With inputs from IANS