US Tariffs To Impact 8% Of India's Auto Component Production: ICRA

The Indian automotive components industry faces a substantial challenge as increased US tariff rates are set to impact approximately 8 per cent of the country's total auto component manufacturing output, according to a new report released by credit ratings agency ICRA.

The analysis reveals that Indian automotive parts manufacturers now face a significant competitive handicap when compared to other major Asian exporting countries. This development highlights the critical need for finalising a comprehensive India-US bilateral trade framework, the ratings firm has further emphasised.

The automotive components export sector represents a crucial pillar of the industry's financial foundation, contributing approximately 30 per cent to total sector revenues. Within this export framework, the US market holds particular importance, representing 27 per cent of the total export revenue share.

"As a result, close to 8 per cent of India's overall auto component production is expected to be directly affected by the recently announced tariffs," ICRA stated.

Tariff Rate Disparities

The implementation of 50 per cent tariff rates on Indian products creates a substantial competitive imbalance for Indian automotive component manufacturers. This policy places them at a marked disadvantage compared to their regional competitors, as nations including China, Japan, Vietnam, and Indonesia benefit from significantly lower tariff rates ranging between 15-30 per cent. 

Additionally, production facilities in Mexico and Canada maintain tariff exemptions through the US-Mexico-Canada Agreement (USMCA), creating additional competitive pressure for Indian manufacturers.

Growth Trajectory In India-US Auto Component Trade

India's automotive component exports to the American market have demonstrated consistent upward momentum over recent years. The trade value progression shows remarkable growth from $4.1 billion in fiscal year 2021 to $6 billion in FY2022, followed by $6.5 billion in FY2023 and $6.8 billion in FY2024. Current projections estimate the trade value will reach approximately $7.3 billion in FY2025.

Market Distribution Analysis 

The geographical breakdown of India's auto component industry revenue streams shows a balanced but export-dependent structure. Export markets contribute 29 per cent of total industry revenue, while domestic market sales account for 56 per cent, and replacement parts demand represents the remaining 15 per cent share, according to Icra's market analysis.

Regional Export Market Diversification

The export portfolio demonstrates strategic market diversification across multiple continents. European markets lead with a 30 per cent share of total exports, followed closely by the US market at 27 per cent. Asian markets contribute 26 per cent to export revenues, while Latin American regions account for 3 per cent, and other international markets make up the remaining 13 per cent share.

Future Outlook

The tariff implementation represents a significant shift in trade dynamics that could reshape India's automotive component export strategy. The competitive disadvantage created by higher tariffs may necessitate strategic adjustments in pricing, market focus, and bilateral trade negotiations to maintain growth momentum in this critical industrial sector.