India Advocates for Stricter Auto Sector Rules in UK Trade Agreement

India is emphasising strict adherence to the Rules of Origin in ongoing free trade agreement (FTA) negotiations with the UK, particularly concerning the automobile sector, Commerce Secretary Sunil Barthwal stated on Tuesday. Barthwal highlighted that these rules must not adversely affect India's automobile industry.

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Rules of Origin and Their Importance

The Rules of Origin provision mandates minimal processing in the FTA country, in this case, the UK, to classify the final product as originating from that country. This measure prevents third countries from dumping goods into India by merely labelling them. The provision ensures that a certain value addition is performed before exporting to India.

Barthwal stressed that the government has implemented a production-linked incentive (PLI) scheme for the auto sector, which should remain undisturbed during the FTA period. "We have also taken care of that till the time the PLI scheme is there. In fact, that is a policy decision that it [PLI] should not be disturbed, and you should reap the full benefits of the PLI within the sector," he added.

Production-Linked Incentive Scheme

Approved in 2021 with a budgetary outlay of Rs 25,938 crore, the PLI scheme aims to enhance domestic manufacturing capabilities in the automobile industry. This includes electric and hydrogen fuel cell vehicles. The scheme incentivises high-value advanced automotive technology products such as sunroofs, adaptive front lighting, automatic braking systems, tyre pressure monitoring systems, and collision warning systems.

The India-UK FTA talks commenced in January 2022 but stalled during their 14th round as both nations entered their general election cycles. Indian industry seeks greater access for skilled professionals in sectors like IT and healthcare in the UK market. Additionally, they want market access for several goods at zero customs duty.

Trade Demands and Opportunities

Conversely, the UK desires significant reductions in import duties on items such as scotch whiskey, electric vehicles, lamb meat, chocolates, and certain confectionery products. Bilateral trade between India and the UK increased to USD 21.34 billion in 2023-24 from USD 20.36 billion in 2022-23.

Barthwal noted substantial export opportunities for India's automobile sector in global markets like the European Union and African nations. He mentioned that while the US market is large, protectionism poses challenges as they aim to develop their manufacturing capabilities.

Discussing energy transition, Barthwal said all countries have committed to net-zero emissions, presenting significant opportunities for the sector. He estimated that the electric vehicle (EV) market size could reach about USD 1.5 trillion in coming years.

Future Prospects and Market Growth

Barthwal encouraged exploring various aspects of this value chain beyond just one component. For instance, he noted that the current auto component market is about USD 1.8 trillion and could grow to USD 2.5 trillion by 2030. "So look at the kind of opportunities which they give rise to," he said.

He also emphasised focusing on mineral and battery chemistry for EVs. "The value chain has extended, and we need to secure these minerals; we need to secure this battery processing technology; and we need to secure or develop other kinds of technologies," Barthwal added.

Post-COVID-19, countries are diversifying their supply chains due to realising it's unwise to rely on a single source. India’s democratic setup and fast-growing economy make it an attractive alternative for many nations looking to diversify.

Barthwal pointed out that sustainability issues have become crucial in international trade discussions today. "Whenever we discuss FTAs with them, they are talking about having a sustainability chapter. They are talking about having an ERM chapter, which is energy and raw material chapter," he said.

Addressing concerns about high testing and validation costs, Barthwal assured that the ministry would look into these issues.

The secretary concluded by highlighting India's potential in developing batteries from locally available minerals and leveraging its capabilities in design and research and development within the auto sector.