India considering local value-addition criteria for auto parts exports to EU, UK, and US

India is exploring the possibility of imposing conditions for minimum local value-addition on auto parts exported to the EU, UK & the US to prevent potential rerouting of parts from other markets, especially China, which is facing heavy tariffs by the Trump administration.

People aware of the developments told ET that while the Centre is doubling down on finalising free trade agreements (FTAs) to further enhance exports, a key focus area is to put in place processes by adding local value-addition criteria of up to 50% to ensure countries facing higher tariffs do not re-route shipments through India to markets overseas.

These parleys come amidst US President Donald Trump imposing so-called ‘reciprocal tariffs’ on many countries, including India, on April 2, though he later postponed them by three months, until July 9. China remains an exception, however, now facing tariffs of 245%.

“India has offered phased reduction of duties on imported auto-parts from the EU. Some of these would come into effect immediately, some in the mid-term, and others long term (10 years) when duties are likely to be zero,” an official said. “However, these duty cuts would be based on local value addition of about 50% on auto parts, so that interests of Indian manufacturers are not compromised by re-routing of Chinese goods.”



For the UK, the local value-addition condition is likely to be set at 45%, and for the US at 50%.

India’s auto parts exports—valued at over $21 billion in FY24—comprised as much as 29% of industry revenue with the US, Germany, Turkey, UK and Italy being the top destinations.

“It is critical that there is a local value-addition clause in place so that countries like China which are facing tariff and non-tariff barriers elsewhere do not route their components through India for sale in US, EU and UK,” a second official said.

Indian companies exported $3.67 billion worth auto parts to North America, and $3.36 billion to Europe in FY24.

On vehicle exports, negotiations are on to offer mutual quota-based concessions, the people said.

“Since the local automobile industry is against blanket reduction in tariffs, the government is looking at zero duties on a certain number or certain types of vehicles exported to or imported in from such countries,” a third official said.

India has offered unlimited imports of electric vehicles priced more than GBP80,000 (about Rs 89 lakh) from the UK in lieu of a larger export quota of smaller EVs priced less than GBP40,000 (Rs 44 lakh) to the country, ET reported last week.

A similar mutual quota-based solution is being explored while finalising a proposed FTA with the EU, and the bilateral trade agreement (BTA) with the US, the people said.

Overall, India has around 3% share in global trade of advanced auto parts. The government has urged stakeholders in the local industry to increase exports of automobiles and their parts to have a larger role in the global supply chain. While component exports are forecasted to triple to $60 billion by 2030, the aim is to grow vehicle exports to 25% of total output in this period, up from 14% in FY23.

In addition to FTAs—to make Indian-made products competitive in global markets—the Centre is extending incentives for manufacturing green vehicles and related components under the Rs 25,938 crore production-linked incentive (PLI) for the automobile and auto component industry.