To strengthen competitiveness and boost automotive exports, India must cut tariffs, boost two-way trade, join cross-border platforms, and shift production toward high-demand segments like passenger vehicles, Niti Aayog said in a report on Tuesday.
In its latest edition of the ‘Trade Watch Quarterly’, the top government thinktank said India must upgrade standards, technology, and supply-chain linkages to scale quality output and expand share.
India’s automotive exports are gaining global relevance, yet their scale and structure reveal a sector at a crossroads. In 2024, global automotive imports were valued at $2.2 trillion, while India contributed about $30 billion—just 1.4% of world demand.
Indian vehicles reach a wide geographic footprint, spanning Japan, Mexico, and markets across Africa and Latin America. However, the composition of exports underscores a strategic mismatch with global demand.
Looking at the wider picture of world automotive trade
Passenger vehicles account for roughly 71% of world automotive trade, but India commands only about 1% of this segment. In contrast, motorcycles comprise just 3% of global demand, yet India holds a much stronger 9% export share. This asymmetry points to the need for reorienting India’s export basket toward high-demand categories, it said.
Historically, India’s automotive industry has been geared toward serving the domestic market, supported by a tariff regime that incentivises local manufacturing and sales. Applied tariffs on finished vehicles often exceed 80–100%, and intra-industry trade (IIT) remains below 20%, reflecting a protected market structure with limited two-way exchange.
Global comparison
Unlike Germany and South Korea—where low tariffs and high IIT signal deep participation in global production networks—India’s exports are driven more by cost competitiveness and domestic value chains than by integration into globally fragmented manufacturing platforms. China, with moderate tariffs and higher IIT, illustrates a more balanced exporter–importer model.
Encouragingly, India’s backward integration into global value chains has improved, rising from 32% in 2015 to 46% in 2024, driven by greater use of imported intermediates and EV-related inputs. The sector is gradually shifting from final-goods trade toward modular, multi-stage production. Yet forward and two-sided linkages remain limited. Deeper integration will require a policy pivot from protection toward lower input tariffs, improved logistics, and closer alignment with international standards.
To enhance competitiveness and global positioning, a coordinated strategy is essential. Industrial policy must prioritise quality, branding, and global outreach, including stricter standards to curb low-quality imports and stronger export promotion through diplomatic channels. Technology transfer should be accelerated via targeted foreign joint ventures, as evidenced by China’s success in upgrading capabilities and moving domestic firms into high-value segments. On costs, rationalising export incentives, strengthening export financing, reducing logistics bottlenecks, and localising critical inputs such as batteries will be crucial.
Market access must also be broadened. Trade diplomacy should leverage FTAs, lines of credit, and embassy-led facilitation to deepen presence in Africa, Latin America, and neighbouring regions, while addressing tariff and regulatory barriers in markets like Mexico and ASEAN. Finally, a mid-course recalibration of the PLI-AUTO scheme—broadening coverage beyond EVs and easing thresholds for startups and MSMEs—can better align localisation goals with demand realities.