Trade Pact with EU to Provide Huge Opportunities for Indian Auto Industry: Agrawal

The proposed trade pact with the European Union (EU) will provide huge opportunities for the domestic auto industry to boost exports and forge new partnerships with leading automobile giants from the 27-nation bloc, a senior government official said on Thursday.

Special Secretary in the Department of Commerce Rajesh Agrawal said India is currently negotiating its biggest free trade agreement (FTA) with the European Union, and it is important particularly for the Indian automobile sector, as the auto sector is one of the bloc's key strengths.

"Our target is to close it as soon as possible with whatever balance, good balance that we can achieve both in terms of providing the market access, getting you (auto industry) the market access and still safeguarding our sector in a manner that the growth and the agility of this sector is not lost till we are completely competitive globally in a manner that we can open up maybe...10-15 years down the line," Agrawal said at a SIAM event here.

"...in case we are able to successfully close (this pact), I think this will be a huge opportunity not only for all of you to export but also a huge opportunity for all of you to create new partnership with the biggest automobile giants in the European Union for bringing in the right technology, bringing in the right mobility solutions for Indian population also going forward," he said.

A team of EU officials is holding the 13th round of negotiations for the pact in the national capital, which is progressing at a faster pace. These remarks are important as the EU is seeking duty concessions in the auto sector from India.

India has provided duty concessions in the sector for the UK firms under a trade pact between the two countries, which was signed on May 6 this year.

Under the pact, tariffs on automotive imports will be reduced from over 100 per cent to 10 per cent under quotas on both sides. India has included adequate safeguards in the FTA with the UK to protect its sensitive sectors. In the automobile segment, the import duty will be reduced over a 10-15-year period.

Agrawal said that these agreements will help not only create domestic capacities but also ensure that the country's entire supply chain has enough resilience.

"For the automobile sector also, if you look at each one of the FTAs, we have been able to secure a much deeper market access for our automobile and auto component sector," he said, adding that at the same time, India is also protecting its sensitive sectors and providing more protection to them, wherever required.

To protect sensitive sectors like auto, he said, India always tries to include provisions for the gradual opening up of these segments.

"...we are trying to negotiate those provisions also wherein we see that our market access is gradually opened up in over 5 to 10 years in many sectors, and in many sectors, we reserve the right beyond a certain quota to see that our complete market is not open for the FTA part," he added.

"So we are trying to calibrate a lot of these negotiations in a manner where we preserve, protect and support our domestic industry. But at the same time, give some access to our emerging market to those countries also in exchange of which they can give us deep market access in their economy because we believe economies of scale and deeper integration with global economies will also play a very important role in how the global supply chains are rearranged in months and years to come and if we have to be a very important dominant part of it, I think we need to play a proactive role in this," Agrawal said.

India's FTAs are being designed similarly, and the department is always engaged with the industry on these issues, he said.

On the issue of the domestic auto industry facing problems from the Chinese export restrictions on rare earth permanent magnets, he said this is a big wake-up call for the country.

He added that to make the supply chain resilient, the Indian industry needs to diversify its purchases and not be dependent on one geography.

"So this is a good wake-up call for all of us. We need to, not only automobile sector, I think all the sectors where we aspire to grow and remain big in this country, we need to probably look at our entire supply chain, identify what are those critical points where the supplies are not diversified enough and there is a risk that we run in case we don't diversify our sourcing or in case we don't indigenise that component or part of the supply chain. I think if industry can identify that the government will be very willing to work with industry to find solutions around it," the special secretary said.

The commerce ministry has discussed with the industry the key critical sectors or challenges that each one faces or anticipates in the years to come.

"Because we need to start taking preventive actions in those areas, because we will never have time once the problem has actually come to our door," he added.

He further said the industry needs to become globally competitive, which requires addressing the handicaps it is currently facing.

"...there is a 15-19 per cent handicap that we suffer as compared to the international industry, and that is one of the key reasons why we are not able to open up our sector in a big way because there is a handicap which needs to be addressed," he said.