How US, EU FTAs can help integrate auto component sector into global value chains: Niti Aayog report explains
By pursuing a combination of fiscal and non-fiscal incentives outlined in the report, NITI Aayog expects India’s auto component exports to triple to $60 billion by 2030, with the country’s share in global value chains rising from 3 to 8 per cent.

Free trade agreements (FTAs) with the US and the EU, along with the creation of a conducive environment for foreign joint ventures (JVs), will help integrate India’s burgeoning auto component industry into global value chains, a new NITI Aayog report said on Friday.
It also recommended a fresh Production Support Scheme to partly cover operational and capital expenditure for auto components left out of the ongoing Production Linked Incentive (PLI) scheme – primarily engines, its components, transmission gears and axles, as well as equipment such as tools and dyes.
By pursuing a combination of fiscal and non-fiscal incentives outlined in the report, NITI Aayog expects India’s auto component exports to triple to $60 billion by 2030, with the country’s share in global value chains rising from 3 to 8 per cent.
Strategically negotiated FTAs key
Stressing the importance of FTAs in boosting export competitiveness, NITI Aayog Member Arvind Virmani said such agreements could also increase investment flows into India and facilitate the creation of foreign JVs.
“Most of the M&As (mergers and acquisitions), whether it’s automobiles or other things, are located in the US, EU and a few other countries. That is why FTAs are so important with the US and EU. This is particularly true of network or complex products, for which things move back and forth all over the place,” Virmani said.
India is currently negotiating a bilateral trade deal with Washington and an FTA with Brussels. The report noted that “strategically negotiated” FTAs can encourage foreign investment, technology transfer, and innovation.
JVs with US, German firms for tech transfer
To help foreign JVs thrive in India, it called for a business-friendly environment supported by tax breaks, subsidies, and investment promotion schemes.
“By partnering with foreign companies from countries like Germany, Japan, and the United States, Indian manufacturers can gain access to cutting-edge technology, expertise, and resources, bridging the gap in specialized manufacturing capabilities,” it said.
Highlighting India’s potential to attract foreign JVs, NITI Aayog CEO BVR Subrahmanyam said, “Everybody outside of China is looking at India right now.”
“If you see the way the tariff policies have been evolving in the largest country in the world, we would be a preferred destination. There are small winners, lighthouse countries like Poland, Mexico, and Indonesia. They have captured on that. We are actually missing out on that,” Subrahamnayam said.
“We need to get the large countries, like the Germans and others, who are getting outcompeted to come and do JVs here. The report identifies clusters located within India. There’s no point spreading it thin. Go where you are already strong and expand it further. Two, go to the countries which have the technologies and get it,” he added.
Schemes proposed for brownfield clusters, opex-capex
The report proposed a new scheme to develop brownfield auto clusters into global manufacturing hubs. “There is also a need to undertake a thorough audit of existing auto clusters to evaluate utilization, implementation problems, and the state of facilities provided,” it said.
The eight auto clusters identified in the report are: Delhi-NCR, Pune, Sri City, Chennai, Ludhiana, Pithampur, Rajkot, and Sambhaji Nagar.
The report found that India’s auto component sector faces a 10 per cent cost disadvantage over China, plus an additional 20 per cent differential on manufacturing equipment.
“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,” it said.
As a solution, it proposes opex incentives for producing engine cylinders and cylinder heads, pistons and engine valves, crankshafts and camshafts, and transmission gears and axles, along with capex incentives for tools and dyes.
Despite being the world’s fourth-largest automobile producer after China, US, and Japan, India accounts for just 3 per cent (around $20 billion) of global auto component trade.
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