Trade Deal Critical As Indian Auto Components Face Steep US Tariffs: ICRA

(MENAFN- KNN India) New Delhi, Aug 6 (KNN) Indian auto component exporters are confronting a significant competitive disadvantage in the United States market following the implementation of a 25 percent tariff on Indian goods by US President Donald Trump, according to a recent report by rating agency ICRA.

The agency has emphasised the urgent necessity for a bilateral trade agreement between India and the United States to prevent long-term setbacks in one of India's most critical export sectors.

The United States announced the new tariffs on July 31, with implementation effective August 7, as part of broader reciprocal measures. The announcement also included threats of potential penalties linked to India's crude oil and defence imports from Russia.

The 25 percent tariff rate imposed on India exceeds those faced by other major Asian exporters, including Japan at 15 percent, Vietnam at 20 percent, and Indonesia at 19 percent, thereby placing Indian exporters at a relative disadvantage in the US market.

ICRA's analysis reveals that approximately 30 percent of the Indian auto component industry's revenues originate from exports, with 27 percent of those exports directed to the United States. Consequently, nearly 8 percent of total production in this sector faces direct exposure to the new US tariff regime.

The report states that tariffs of 25 percent for Indian auto components are significantly higher compared to those imposed on Japanese and European exports, placing Indian exporters at a strategic disadvantage, particularly as Canada and Mexico maintain exemptions under the USMCA agreement.

The competitive pressure is expected to intensify, prompting Indian firms to diversify into non-automotive sectors, seek alternative markets, and implement cost-optimisation measures.

Exporters with heavy reliance on the US market are already exploring new geographical markets across Asia and beyond to reduce operational risks.

Despite maintaining a marginal advantage compared to China, which faces a 30 percent US tariff, Indian firms are unlikely to benefit substantially unless a comprehensive trade agreement is established promptly.

The ICRA report has highlighted the broader impact of US tariff policy on India's gross domestic product, revising the country's fiscal year 2026 growth forecast downward by 20 basis points to 6 percent. The agency warned that additional penalties, which have yet to be quantified, could further exacerbate this economic downside.

Beyond auto components, other key sectors including textiles, cut and polished diamonds, tires, and non-ferrous metals are anticipated to experience adverse effects due to the higher-than-expected tariffs announced by the United States.

However, the exemption of pharmaceuticals and petroleum products provides some relief to the Indian export sector. The report concluded that a bilateral trade agreement between India and the United States is not merely important but critical for India's export performance.

Without such an agreement, India risks losing its strategic advantage in several high-value export categories, with auto components leading the list of affected sectors.

(KNN Bureau)

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