Govt planning incentive scheme to buoy auto parts exports amid Trump tariff

Mint

15-07-2025

New Delhi: The government has started working on an incentive scheme to boost exports for India's $111-billion automotive components industry amid trade uncertainties unleashed by American president Donald Trump's steep import tariff, three people aware of the development said.
As part of the scheme, the government might consider incentivizing manufacturing of specific auto parts that are exported the most such as engine components. Moreover, specific export-oriented fiscal sops might also be introduced. The discussion is in initial stages and nothing is finalized about the scheme yet, the people cited earlier said on the condition of anonymity.
'The ministry of heavy industries and the ministry of MSME (micro, small and medium enterprises) have started discussing a new scheme which will benefit Indian automobile component manufacturers, but the corpus of the scheme has not been decided yet," said the first person.
'Discussions have started on making a new scheme for components and eventually the industry will be actively roped in. Currently, there is work going on to identify target products and geographies for export among Indian auto components," said the second person.
The US has imposed a 25% tariff on all automobile imports into the country, disrupting global trade, and throwing Indian auto component makers into a fog of uncertainty.
India's auto parts makers exported goods worth $22.9 billion in FY25, a rise of 8%. Of this, $7.35 billion worth of goods were exported to the North American region, as per the Automotive Component Manufacturers Association of India (ACMA).
The government's move also comes at a time when India's domestic automobile market has overtaken Japan in sales to become the third-largest in the world after the US and China, but the nation's auto parts exports have hovered around the 3-4% of the global export market, according to a NITI Aayog study in April this year titled 'Automotive Industry: Powering India's participation in Global Value Chains".
Queries emailed to the spokespersons of the ministries of heavy industries and MSME remained unanswered till press time.
These auto parts manufacturers, a significant number of which are MSMEs, make and export engine components, drive transmission and steering systems.
'In components, we need to leverage our strengths in ICE (internal combustion engine) along with increasing presence in emerging trends like EV (electric vehicle) components and electronification. A lot of markets are open to importing classical vehicle components from India which will help in boosting exports. Any help in exports will help boosting the auto component industry's prospects to achieve the target of $100 billion exports," said Natarajan Sankar, managing director and partner at Boston Consulting Group.
India's auto components industry aims to achieve $100 billion in exports by 2030. Top exporters of components from the Indian market include Sona Comstar, Bharat Forge, Uno Minda and Bosch India, among others. India's auto components industry's turnover has doubled from FY20 to FY25 at a compounded annual growth rate of 14%, according to ACMA.
In FY25, the component industry's sales to vehicle makers rose 88% to ₹5.70 trillion from ₹3.02 trillion in the previous fiscal, according to ACMA data.
The government's move comes in the backdrop of NITI Aayog's recommendations in April this year for boosting exports of India's auto parts industry. NITI Aayog recommended fiscal incentives to manufacturers to boost their operational and capital expenditure to achieve scale in making engine cylinders, valves and pistons and to procure tools and dies. In a report, the top government policy think tank stated that there should be efforts to attract overseas talent and motivate high-level talent to return to India, as a part of non-fiscal skilling incentives.
It noted that India's auto component exports are worth about $20 billion, while imports are worth about the same, resulting in a near-neutral trade ratio of 0.99.
But, India's industry faces competitive headwinds compared to China, the report also highlighted. It pointed at cost disabilities of nearly 10% compared to China.
Additionally, there is an extra cost disadvantage for India of approximately 20% on equipment (capital goods) required for component manufacturing, compared with China, due to material cost disability, NITI Aayog said.
'China benefits from a well-integrated supply chain, spanning from raw minerals to high-value-added products, whereas India lacks such depth in its supply ecosystem," said the report.
The report also set a target of auto parts production worth $145 billion and exports worth about $60 billion by 2030. But, manufacturers face tough times as the effectiveness of schemes to boost auto parts productions are often misaligned with the specific needs of the sector, the report noted.
'Indian companies and components face a cost handicap of 10% and to bridge this gap, there is a need to provide fiscal incentives for auto component manufacturing," said the report.
Earlier, prime minister Narendra Modi, at the launch of the Digital Mobility Initiative for Automotive MSMEs in February 2024, had said that the significance of the automobile industry to the nation's economy is mirrored in the role played by MSMEs within this sector.
'Today, components manufactured by Indian MSMEs are integrated into vehicles worldwide, opening doors to numerous global opportunities," he had said.
The government's focus on the auto components sector also comes amid a rapid shift towards cleaner powertrains in vehicles. The shift towards cleaner fuels to decarbonize the auto sector is apparent, with the sales of electric vehicles in India rising 17% in FY25, considerably higher than the 4% sales growth in petrol and diesel vehicles during the same period.