India-EU FTA to provide better access to European markets for Indian auto component firms: Icra

The India-EU deal is expected to reshape competitive dynamics and market access on both sides while providing better access to European markets for Indian auto and component exports, aiding the sector’s long-term growth prospects, according to a report by Icra.It is expected to give a boost to premium vehicle imports, but have limited disruption to the mass market, it added.

The sharp reduction in duties on EU-made vehicles (completely built units) is expected to drop from as high as 110 per cent to 10 per cent over time for a fixed quota/annum, above an import price of Euro 15,000/vehicle, the report said, adding that this will open India’s car market to European original equipment manufacturers (OEMs).

“Lower tariffs are expected to improve access for European brands like BMW, Mercedes, Audi, and Porsche, enabling competitive pricing and new growth opportunities in India’s fast-expanding auto market,” the report pointed out.

It, however, said there will be a limited impact on the mass market segment and the tariff cuts are likely to only benefit premium internal combustion engine (ICE) vehicles, with small/mid-segment cars (constituting a bulk of the Indian market) remaining largely unaffected.

“Additionally, tariffs on electric vehicles will stay unchanged for the first five years. Nonetheless, the deal has the potential to marginally increase competitive intensity in the market to an extent,” it added.Icra noted that there will be improved competitiveness for Indian auto and auto component exports while also providing better access to European markets, aiding the sector’s long-term growth prospects.Indian auto component manufacturers are likely to see improved export access to European markets under the proposed FTA, with tariff rationalisation and preferential access expected to enhance pricing competitiveness and sourcing opportunities with European original equipment manufacturers (OEMs), it added.

The European Union remains one of the world’s largest automotive production hubs, and improved trade access is expected to help Indian suppliers strengthen participation in global automotive supply chains, the rating agency said.

Preferential market access could enable domestic component manufacturers to compete more effectively, with suppliers from countries that currently enjoy tariff advantages in the region, it added.

Automobiles and auto components currently account for around 3 per cent of India’s exports to the EU, indicating scope for expansion as trade barriers ease and sourcing relationships deepen.

Improved trade conditions may support higher export volumes from specialised component manufacturers and firms integrated into global manufacturing programmes, Icra said.

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