Indian auto component manufacturers are poised to gain increased access to European markets with enhanced price competitiveness under the proposed India-EU Free Trade Agreement (FTA). A report by ICRA highlighted that tariff rationalization and preferential access are anticipated to boost pricing competitiveness and sourcing opportunities with European original equipment manufacturers (OEMs). The EU, being a significant automotive production hub, could potentially assist Indian suppliers in strengthening their involvement in global supply chains.
The FTA could enable domestic component manufacturers to better compete with suppliers from nations currently enjoying tariff advantages in the region, as noted by the ratings agency. Currently, automobiles and components constitute around 3% of India’s exports to the EU, indicating room for expansion as barriers are alleviated. The agreement entails a phased reduction in import duties on EU-origin completely built units (CBUs), with tariffs expected to decrease from approximately 110% to about 10% within specified price thresholds and quotas.
According to the report, this transition is likely to impact premium vehicle segments primarily, while mass-market passenger vehicles are expected to remain largely unaffected. Moreover, the report suggests that tariffs on electric vehicles (EVs) are projected to remain stable initially, providing domestic EV supply chains with time to adapt to evolving trade dynamics. The improved market access could potentially stimulate investments in precision engineering, electronics integration, and specialized component manufacturing, fostering technology collaboration and product diversification with European manufacturers.
Export-oriented mid-sized firms and MSMEs engaged in specialized components and aftermarket products may witness enhanced access to European buyers as sourcing bases diversify and procurement strategies evolve within global automotive supply chains. On the import front, the report indicates that tariff reductions are likely to benefit premium internal combustion engine (ICE) vehicles, while small or mid-segment cars are expected to see minimal impact. India is set to receive preferential zero-tariff access on 97% of the EU’s tariff lines, covering 99.5% of India’s export value, while reciprocally eliminating or reducing tariffs on 92% of its tariff lines.
