Chennai, March 28 (IANS) The Japanese earthquake and tsunami may not adversely affect the Indian automobile sector in the short term, but the impact over medium to long term will have to be seen, credit rating agency ICRA said Monday.

In a statement, the agency said that several challenges could emerge in the aftermath of the earthquake and tsunami. These include disruption in supplies of vehicles and vehicle assemblies in India, cost pressures arising from appreciation of the Japanese yen, delays in model launches and in investments by Japanese players in the Indian market.

According to ICRA, other difficulties include rising costs of raw materials like steel, rising interest rates - which Indian automotive firms are already grappling with - and increase in customs duty on pre-assembled engine and gearbox or transmission mechanism that takes effect from April 1 this year.

"While the domestic automotive industry has posted strong growth across segments during 2010-11 so far, the cost push factors such as higher commodity prices, foreign exchange volatility (especially with respect to the yen) and increase in the landed costs of imports are some factors that may adversely affect the financial performance of automotive and auto-ancillary players over the short term," said Subrata Ray, senior vice president and company head for Corporate Ratings divison.

While the Indian subsidiaries of Japanese original equipment manufacturers (OEMs) in the two-wheeler segment and most players in the domestic commercial vehicle segment have limited dependence on imports, some of the OEMs (and the ancillaries) in the passenger car segment continue to import significant number of components, the ICRA report said.

Also, while production at various sites of automotive OEMs and auto-ancillaries in Japan was halted for a few days beginning after the catastrophic earthquake and tsunami March 11, the total damage of outbound shipments of some companies will not have any adverse impact on the auto production in India in the near term, ICRA said.

According to ICRA, Indian auto-ancillaries and OEMs are monitoring the developments and identifying alternative locations for sourcing electronic components (the most affected product segment).

However, if the restoration of production in Japan takes longer, this may lead to shortage of select parts and impact the production levels of those models in India, the rating agency said.