India-US trade deal impact: Will it lift auto component exports? EXPLAINED

India-US trade deal impact on auto industry: India has sealed the long-awaited trade deal with the United States that will see Washington reducing additional tariffs on Indian imports to 18 per cent, from the current 50 per cent.The deal is expected to shift investor focus to export-oriented industries where earnings came under pressure due to higher duties.With improvement in pricing competition and easing margin headwinds, companies with higher US revenue exposure could see improved profitability and better order visibility.Auto Component Exports Likely To See GrowthOn the India-US trade deal, auto components industry body ACMA has said the agreement will boost the competitiveness of Indian goods in the US market, news agency PTI reported.The Automotive Component Manufacturers Association of India (ACMA) applauded Prime Minister Narendra Modi and Commerce Minister Piyush Goyal on securing a trade agreement with the US, reflecting the growing strategic and economic partnership between the world's two largest democracies, the report added.“The proposed reduction in reciprocal tariffs to 18 per cent is a positive step that will enhance the competitiveness of Indian automotive components in the US market," ACMA President Vikrampati Singhania was quoted as saying by PTI.The US is among the most important export destinations for India's auto component industry, Singhania added as reported by PTI.Auto Components Industry In IndiaAs one of the key pillars in India's manufacturing industry, the auto component sector supplies critical parts and systems to domestic vehicle manufacturers, besides exporting to major global markets.The sector houses a host of products which include engine parts, transmission systems, braking systems, electrical and electronics components, body and chassis parts, among others.The auto component sector is expected to reach the USD 100 billion export target by 2030 making the sector one of the largest job creators in the country.India's auto component sector contributes 2.3 per cent to India’s GDP, directly employing over 1.5 million people. The sector's turnover in FY24 was Rs 6.14 lakh crore (USD 74.1 billion), with domestic OEM supplies making up 54 per cent, and exports contributing 18 per cent. Over FY16-FY24, the industry grew at a CAGR of 8.63 per cent. In FY24, exports reached USD 21.2 billion, with a trade surplus of USD 300 million, and are projected to hit USD 30 billion by 2026.By FY28, the Indian auto industry aims to invest USD 7 billion to boost the localisation of advanced components like electric motors and automatic transmissions by reducing imports and leveraging the "China Plus One" trend. In 2023, the auto component industry achieved a 5.8 per cent reduction in imports over two years. The majority of the components sold to original equipment manufacturers (OEMs) are engine components (26 per cent), body/chassis/BIW (14 per cent), suspension and braking (15 per cent), drive transmission and steering (13 per cent), and electricals & electronics (11 per cent). Major exports are to Europe (USD 6.89 billion), followed by North America (USD 6.19 billion) and Asia (USD 5.15 billion).