FTA Could Harm MSMEs Due to Cheaper Imports, Says Assocham President

Assocham President Nirmal Kumar Minda has expressed caution about the potential reduction of  import duties on auto components under the proposed trade pact with the European Union (EU), warning that such concessions must be "calibrated" to avoid negative impacts on domestic manufacturers, particularly micro, small and medium enterprises (MSMEs).

In an interview with PTI, Minda emphasised that while the proposed agreement provides domestic players access to advanced technology, larger markets and stable supply chains, there is merit in considering them, particularly for products where India has a cost advantage.

"But a blanket reduction may hurt domestic suppliers, particularly MSMEs, as EU components often come with strong scale, automation and subsidies," he told PTI in an emailed interview.

India and the 27-nation EU bloc have been negotiating a trade pact since 2007. On December 9, the two sides concluded a high-level meeting on the pact.

The EU is seeking concessions in import duty in the country's automobile and components sectors.

Duty concessions on auto components in an FTA (free trade agreement) need a very calibrated approach, he said, adding with the European Union, the question is not just tariffs but the overall competitiveness equation.

Minda is also Chairman and Managing Director (CMD) of Uno Minda, a leading auto components maker.

"Any concession must therefore be linked to clear reciprocity, phased timelines, and safeguards to ensure India's manufacturing base continues to grow," he said.

He was replying to a question whether he is in favour of giving duty concessions on auto components in FTAs particularly with the EU.

MSMEs Under Pressure

Despite the opportunities presented by trade agreements, MSME in India—especially in the auto components, handicrafts and other industrial sectors—are under growing pressure from cheaper, large-scale imports.

According to a report published by The Indian Express in September 2024, MSMEs in India, particularly in auto components, handicrafts and other industrial segments, are increasingly displaced by foreign imports, particularly from China.

For instance, China supplies 95.8% of India’s umbrellas and sun umbrellas ($31mn) and 91.9% of artificial flowers and human hair articles ($14mn). China’s share in glassware has reached 59.7%, handbags 54.3% and toys 52.5%, reflecting a similar trend.

Even sectors traditionally strong in India, such as the ceramics 51.4% and musical instruments 51.2%, are seeing local production displaced by Chinese imports, stated a report by the Global Trade Research Initiative (GTRI).

(With inputs from PTI.)