India, US Sign Framework for Interim Trade Agreement: Preferential Tariffs on Auto Parts, ACMA Responds

India and the US have announced the formulation of a framework for an interim trade agreement, as talks progress on a more wide-ranging bilateral free trade agreement. This interim measure signals warmer ties between India and the United States, against the backdrop of the growing influence of China’s automotive industry and overall economy on global trade. The move makes it likely that certain benefits will go into effect quickly, boosting manufacturing cooperation and supply chain integration between both countries.

Under the terms of the current draft framework, US tariffs on imports from India will drop to 18 percent, with potential to be dropped further or eliminated altogether, significantly improving market access for Indian manufacturers. Automotive parts manufacturers in India will also benefit from a quota for preferential tariff rates when exporting to the US. This comes after the signing of a landmark India - EU FTA and the India - UK bilateral trade agreement. Tariffs were imposed last year, resulting in significant impact on India's auto components sector. 

In addition to automobiles and aircraft components, other sectors that are expected to benefit include pharmaceuticals, jewellery, textiles, footwear, handicrafts, agriculture, seafood, data centre infrastructure, and raw materials. Compliance standards have also been eased, making international business processes easier.  

Meanwhile, India will reduce barriers to the import of US food and agricultural produce, fruit, alcoholic spirits, and other categories. However, the government has committed to safeguard Indian farmers’ interests and rural livelihoods by protecting key crops and dairy products from competing imports. 

The news was welcomed by Prime Minister Narendra Modi, who said in an official social media post “This framework reflects the growing depth, trust and dynamism of our partnership. It strengthens ‘Make in India’ by opening new opportunities for India’s hardworking farmers, entrepreneurs, MSMEs, startup innovators, fishermen and more”. He added “This framework will also strengthen resilient and trusted supply chains and contribute to global growth.”

Announcing the agreement between both countries, Union Minister of Commerce and Industry, Piyush Goyal, posted “This will open a $30 trillion market for Indian exporters, especially MSMEs, farmers and fishermen. The increase in exports will create lakhs of new job opportunities for our women and youth.”

The Automotive Component Manufacturers Association of India (ACMA) has responded positively to the announcement, noting its potential to improve bilateral trade and reinforce India’s position in the global automotive supply chain. 

In a press statement, Vikrampati Singhania, President, ACMA and Vice Chairman & MD, JK Fenner (India), said “ACMA welcomes the India – US Interim Trade Agreement framework and the parallel announcements by the US Administration, which signal a clear intent to strengthen bilateral manufacturing and supply-chain partnerships. For the Indian auto component industry, the commitment to preferential tariff rate quotas for automotive parts, removal of Section 232 tariffs on select inputs, and a pathway for further tariff rationalisation under the proposed Bilateral Trade Agreement are indeed positive steps.”

“These measures will lead to enhanced export competitiveness, deepen technology collaboration, and reinforce India’s role as a trusted partner in resilient global automotive supply chains. ACMA looks forward to constructive engagement with both governments to ensure that automotive components are fully integrated into the final agreement, with balanced market access and long-term policy certainty”, he added.

According to an ACMA-McKinsey study published late last year, India's auto component manufacturing industry will be worth $200 billion (approximately ₹2 lakh crore) by 2030. In its Industry Performance Review released last month, ACMA said the sector had grown by 6.8 percent year-on-year (YoY) to reach a turnover of ₹3.56 lakh crore (approximately $41.2 billion), based on domestic as well as export demand, with the US remaining a top export destination despite the imposition of tariffs.