India Emerges as Key Player Amid U.S. Tariffs on Aerospace Imports

At a time when the Indian space and the aerospace/aviation sectors were taxing well and geared up for a great take off, the 26% reciprocal tariff by the US government led by President Donald Trump has made the sector silent.

While Trump has paused the tariffs for 90 days for all the countries barring China, the reality is that the US import duties will be activated.

Is the tariff a tailwind or headwind? Will there be space wars and dogfights? These are the questions that industry players are searching for answers.

Tariff Impact: An attractive pathway for global companies looking to de-risk and diversify their supply chains

“The space sector exports from India are very little. But as we go along, we expect this to increase manyfold. However, the tariffs do not impact much. Its effect is marginal,” Dr. Subba Rao Pavuluri, Chairman & Managing Director, Ananth Technologies and President of SIA-India, told Orbital Today.

Voicing a similar view N.Shekar, Strategic Consultant-Space and Aerospace, said: “India imports some electronics. If the US has an export tariff, then Indian players will look at other sources of imports.”

Elaborating further, Jagat S Parikh, President, Strategy & Growth, Walchandnagar Industries Ltd said the Indian government’s decision to allow 100% foreign direct investment (FDI) in space manufacturing under the automatic route is a timely and strategic move, especially in light of the new tariffs levied by the US.

 “It creates an attractive pathway for global companies looking to de-risk and diversify their supply chains. India now stands out as a competitive base for satellite manufacturing, components, composites and satellite launch destination driven by low cost and a growing start-up ecosystem. This policy shift positions India as a credible alternative for partnerships with the US and Europe players seeking reliable sourcing,” Parikh told Orbital Today.

Cooperation between India and Europe in the space sector has been there for a long time.

Walchandnagar Industries is a heavy engineering company that caters to India’s strategic sectors like defence, nuclear, aerospace and several other industrial products.

On the aspect of foreign space players setting up operations in India, Parikh said the sector is not much of a high-volume business like the automobile, computers, mobile phones, engineering and others.

“It is unlikely that launch vehicle companies will set up operations here in India, but they will definitely source from India. Satellite is a high-volume business and lands itself for sourcing from India and also launching from India given our launch cost is attractive. Composites is another area for sourcing from India,” Parikh remarked.

Aviation Sector: Air or Cash Pocket

Shekar, a former Managing Director of CDG India, a Boeing subsidiary, said the two global aviation majors, Boeing and Airbus Industries, source components from India.

“The value of aerospace exports will be about $2 billion per annum. There are about 300/400 suppliers in India. It is mainly Boeing that imports from India,” Shekar added.

According to Boeing, it sources products worth about $1.25 billion per year from a network of about 300 suppliers.

While that is for the present, could global majors shift their production bases to India and other Asian countries with lower reciprocal tariffs?

Moody’s Ratings in a cross-sector report said lower-tariff countries like Malaysia, India, and the Philippines might gain market share through trade triangulation to serve the US market. Countries with large domestic markets, such as India, may benefit from production shifts in the long term.

Higher tariffs will affect global trade, reduce regional export demand, and lower business confidence, leading to decreased investment in the Asia-Pacific (APAC) region.

APAC economies face both direct and indirect exposure to higher US tariffs. Vietnam, Cambodia, Thailand, and Taiwan have high direct exposure, while Pakistan and Bangladesh’s exposure is concentrated in specific sectors, said Moody’s.

Countries will also be indirectly impacted through value-added contributions to other nations’ exports, with significant links to connector economies like Vietnam, Singapore, and Malaysia.

“Southeast Asia, which has long served as an alternative production hub to China, now could face growing challenges as it becomes a target of these tariffs. This could drive multinational companies to rethink their manufacturing strategies, spreading production across multiple countries in Asia and beyond to reduce dependency on any single location. While this diversification increases costs and operational complexity, it is becoming an essential approach to building resilience in the face of geopolitical and economic pressures,” said Vitaliano Tobruk, Supply Chain Industry Practice Lead at Moody’s.

Similarly, credit rating agency India Ratings and Research in its report said: “Given that India faces lower reciprocal tariffs than China and Vietnam, India may have a better position, especially for finished product categories where it competes with China or Vietnam due to competitive labour. However, markets such as Brazil which have been imposed with tariffs of 10% may act as an alternate source and limit the benefit.”

Shifting production locations to take advantage of lower tariffs is not risk-free.

“However, moving production from a supplier in one country to another involves significant risks and complexities, such as costly and lengthy transition periods and supplier development costs. There may be potential responsiveness issues from old suppliers, and strategic risks as old suppliers turn into competitors. Nor does changing suppliers reduce dependencies on raw material providers in lower tiers of the supply chain,” remarked Andrei Quinn-Barabanov, Supply Chain Industry Practice Lead at Moody’s.

Be that as it may, multinational aviation players have started setting up production bases in India.

Boeing has a joint venture with India’s major diversified industrial conglomerate the over $165 billion revenue Tata group.

“But Boeing and Airbus will not set up the final assembly line in India,” Shekar remarked.

India is one of the largest and growing commercial aviation markets, with a couple of airlines having placed huge aircraft orders with the global majors.

In 2023, the Tata group’s Air India airlines placed orders for over 220 aircraft with Boeing and 350 aluminium birds with Airbus. The aircraft makers have started deliveries against the order.

India also imports aircraft for its defence needs. With the US tariff that would increase the end prices, India may look at the European (Dassault, Airbus and others) and Russian defence imports like fighter jets, helicopters and others.

With the Indian’s government under Prime Minister Narendra Modi’s focus on self-reliance, defence contracts will come with conditions on local manufacturing of components. 

According to Shekar, China also makes some components for Boeing and that might shift to India owing to lower tariffs with routing of components through low-tariff countries now blocked by the US. The US might review the tariff rates after it overcomes its debt situation.