Indian auto component manufacturers are expected to gain greater access to European markets and enhanced price competitiveness under the proposed India-EU Free Trade Agreement (FTA), a report by ICRA said on Friday.

The report noted that tariff rationalisation and preferential market access are likely to improve pricing advantages and sourcing opportunities with European original equipment manufacturers (OEMs).

As the EU remains a major automotive production hub, better trade terms could help Indian suppliers expand their participation in global automotive supply chains, the report added. It could also allow domestic manufacturers to compete more effectively with suppliers from countries that currently enjoy tariff benefits in Europe.

Currently, automobiles and components account for around 3 per cent of India’s exports to the EU, indicating significant potential for expansion as trade barriers are eased.

Key highlights of the FTA

  • The FTA includes a phased reduction in import duties on EU-origin completely built units (CBUs), with tariffs set to fall from around 110 per cent to roughly 10 per cent within specified price thresholds and quotas.
  • This reduction is expected to primarily impact the premium vehicle segment, while mass-market passenger vehicles will largely remain unaffected.
  • Electric vehicle (EV) tariffs are likely to remain unchanged initially, allowing domestic EV supply chains time to adapt to evolving trade dynamics.

Opportunities for investment and collaboration

Enhanced market access is expected to encourage investments in precision engineering, electronics integration and specialised component manufacturing. It may also foster technology collaboration and product diversification with European manufacturers.

“Export-focused mid-sized firms and MSMEs engaged in specialised components and aftermarket products could see improved access to European buyers as sourcing bases diversify and procurement strategies evolve within global automotive supply chains,” the report said.

Impact on imports

For vehicles imported to India, the tariff reductions are likely to benefit mainly premium internal combustion engine (ICE) vehicles, with small and mid-segment cars remaining largely insulated.

Under the FTA, the EU will grant India zero-tariff access on 97 per cent of its tariff lines, covering 99.5 per cent of India’s export value, while India will eliminate or reduce tariffs on 92 per cent of its lines.

The agreement is expected to strengthen India-EU trade ties and provide a significant boost to the competitiveness of Indian auto component makers in the global market.

IANS