With a contribution of around 25 per cent to total merchandise exports, India's engineering goods sector is a significant driver of the country's exports. While the US and EU remain the top destinations for engineering exports, India is actively expanding into new markets. In this exclusive interview with Rakesh Rao, Pankaj Chadha, Chairman, EEPC India (the apex organisation responsible for driving the country's engineering exports), elaborates on the current global market scenario, India's role in the evolving market and exports forecast.

India’s engineering goods exports are expected to reach between $118 billion and $120 billion in FY25. The official target set by the Ministry of Commerce stands at $118 billion, but we are aiming for a more ambitious goal of $125 billion. In FY24, exports declined by 8.5 per cent year-on-year, totalling $108.9 billion, due to a global slowdown, trade restrictions, and supply chain disruptions. However, exports have rebounded in FY25, with a 9.92 per cent growth rate in the first ten months, driven by strong demand for industrial machinery, automotive components, and electrical equipment. Despite this recovery, exporters remain cautious about the impact of global trade uncertainties, rising raw material costs, and protectionist policies in key markets like the US and EU.

India’s engineering exports span a wide range of industries, with industrial machinery leading the sector, accounting for 22 per cent of total exports. This includes power generation equipment, construction machinery, and textile machinery, which have seen steady demand in emerging markets. Iron and steel products follow closely, contributing 15-18 per cent of exports. However, rising domestic steel prices pose a challenge for small and medium-sized exporters. The automobile and auto components industry is another significant contributor, making up 12-14 per cent of total engineering exports, with strong demand from markets like the US, EU, and Africa. Electrical equipment and electronics exports, including power distribution transformers, circuit breakers, and semiconductors, are projected to surpass $15 billion in FY25. Additionally, aerospace and shipbuilding components are emerging as key segments, supported by India’s efforts to strengthen its defence manufacturing sector.

The recent US decision to impose a 25 per cent tariff on steel and aluminium imports from India, effective March 12, 2025, is expected to significantly impact Indian exporters. Previously, India enjoyed exemptions covering nearly 60-80 per cent of its steel exports to the US, allowing it to remain competitive. With these exemptions now expiring, Indian exporters will face higher costs, making their products less attractive compared to suppliers from countries like Canada and Mexico, which have preferential trade agreements with the US. The full impact of these tariffs will be felt in FY26, as Indian exporters either absorb the costs or shift focus to alternative markets such as Southeast Asia and the Middle East. Industry bodies have urged the government to negotiate tariff relief, but given the current global trade environment, securing exemptions may prove challenging.

The European Union, India’s second-largest market for engineering goods, is implementing two major policy changes that could disrupt exports. The first is a reduction in safeguard quotas for steel imports. Under the current system, the EU allows a certain volume of duty-free steel imports each quarter, beyond which a 25 per cent tariff is applied. Indian exporters frequently hit these limits within days, forcing them to pay additional duties on excess shipments. If these quotas are reduced further, Indian steel and engineering exports will face even stricter trade restrictions. The second challenge comes from the Carbon Border Adjustment Mechanism (CBAM), a new carbon tariff on imported goods, including steel, aluminium, and industrial machinery. From January 1, 2026, Indian exporters will be required to pay additional levies based on the carbon footprint of their products. While some Indian steel manufacturers are investing in green hydrogen and low-carbon technologies, full-scale implementation will take time, potentially increasing costs for exporters in the short term.

The Union Budget did not provide significant direct incentives for engineering exporters, despite industry demands. One of the key concerns is the uncertainty surrounding the interest subvention scheme, which provided a 3 per cent interest subsidy on loans for MSME exporters but expired on December 31, 2024. Industry leaders had expected an extension of this scheme, as higher financing costs could reduce competitiveness. However, no announcement was made, leaving exporters uncertain about future borrowing costs. Another concern is the government’s possible introduction of safeguard duties on imported steel to protect domestic producers. While this would benefit large Indian steel manufacturers, it could lead to higher input costs for MSME exporters who rely on competitively priced raw materials for engineering goods production.

India is benefiting from the China Plus One strategy, as multinational companies seek to diversify their supply chains away from China. Several factors are driving this shift. The government’s Production-Linked Incentive (PLI) scheme is attracting investments in sectors such as electronics, industrial machinery, and automotive exports, helping India strengthen its position as a global supplier. Additionally, India has signed free trade agreements (FTAs) with key markets like the UAE and Australia, offering duty-free access to Indian exporters. Despite these advantages, global protectionist policies continue to pose challenges. The US and EU are tightening trade regulations, which could limit India’s ability to fully capitalise on supply chain shifts.

The government is actively engaging with exporters to help them navigate global trade challenges. Negotiations for the India-EU Free Trade Agreement (FTA) are ongoing, with a focus on securing preferential access for engineering goods to offset trade barriers like CBAM and safeguard quotas. The Indian Commerce Minister is expected to visit Europe soon to accelerate discussions. Additionally, the government is conducting consultations on steel pricing, as MSME exporters rely on competitively priced steel to remain viable in global markets. Industry bodies such as EEPC India have urged the government to introduce a transparent pricing mechanism to prevent cost escalation. The government is also expanding trade promotion activities by encouraging participation in global trade fairs like Hannover Messe and Bauma, providing Indian exporters with a platform to showcase their products and attract international buyers.

While the US and EU remain the top destinations for engineering exports, India is actively expanding into new markets. The Gulf Cooperation Council (GCC) nations, including Saudi Arabia, the UAE, and Qatar, have emerged as major buyers, driven by large-scale infrastructure projects. Southeast Asia is another promising region, with countries like Vietnam, Indonesia, and Thailand increasing their imports of electrical equipment and automobile components from India. Africa is also becoming a key market, particularly in power generation and transportation sectors, as infrastructure projects in Kenya, Nigeria, and South Africa continue to grow.

The global economic landscape remains uncertain, impacting India’s engineering exports. Slowing growth in advanced economies like the US, EU, and Japan could lead to lower demand for industrial machinery and capital-intensive goods. Rising global interest rates have made borrowing more expensive for buyers, reducing their ability to invest in large engineering projects. Geopolitical tensions, particularly the Russia-Ukraine conflict and US-China trade disputes, continue to disrupt supply chains, affecting logistics and raw material availability. However, the global push for renewable energy and infrastructure development is creating new opportunities for India, as demand for solar energy equipment, power transmission systems, and green technologies increases worldwide.

Despite short-term challenges, India’s engineering exports have strong growth potential over the next few years. Future growth will depend on successful trade negotiations with the EU and other major economies, as well as increased investment in value-added manufacturing to move beyond raw material exports. The diversification of export markets beyond the US and EU will also be crucial in mitigating trade risks. Additionally, India’s adoption of green manufacturing technologies will determine its ability to comply with evolving global environmental regulations. If India effectively navigates these challenges, engineering exports could surpass $150 billion by FY27, making the sector a key driver of India’s economic growth.