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The India EU FTA raises India’s FTA coverage of goods exports to 50%. EU27’s large market and strong export complementarity further raise its potential value. Sectors like textiles, clothing, footwear and plantation products (tea/coffee/spices), stand to benefit the most: in these India faced higher tariffs than Asian rivals and also has a revealed competitive advantage. Limited change on non tariff barriers, still ongoing negotiations on investments, caveats on people mobility, staggered market opening and political risks are likely to delay benefits. But it strengthens India strategically amid the stalled US trade deal, especially as it follows other deals (esp. UK), and signals India prefers open markets.
EU27 rivals the US in size, and has a better export complementarity to India
The much-anticipated (negotiations began in 2007) India-EU Free Trade Agreement (FTA) follows recent deals with the UK, Oman and NZ. Coverage of India’s goods exports under its 22 FTAs rises to 50%; the impact is amplified by EU27’s market size and better export complementarity for India. Sectors such as clothing, textiles, footwear, and plantation products (tea/coffee, spice) stand to gain the most from this agreement. In these, the EU’s current tariff structure had a meaningful gap between India and its Asian rivals (Bangladesh, Vietnam) and India has a revealed comparative advantage.
Non-tariff barriers could limit gains, implementation delays remain a key risk
The need for European Parliament approval means implementation is at least one year away; lead times thereafter also tend to be lengthy: India’s market opening is typically staggered (up to 10 years) and the EU-Mercosur deal shows that European politics tends to throw surprises. The carve outs on agriculture, and the lack of EU concessions on non-tariff barriers (NTBs) like sanitary/phytosanitary measures and the Carbon Border Adjustment Mechanism (CBAM) may improve the speed and chances of approval, though they also limit upside: NTBs are a bigger concern for India as average tariffs were low. Commitments on services and mobility of people are also included with caveats.
Economic gains may be some time away, but it has strong signal/strategic value
While set out to be a comprehensive agreement (these include goods, services, people and investments), the current FTA seems to have narrowed focus on areas of agreement for now, with negotiations on investment protection ongoing. For India, import tariff reduction on autos will be phased. As sectors likely to gain are the ones hurt the most from US tariffs, this deal becomes far more strategically valuable given the deadlock on the India-US trade agreement. Deals with the US’s ideological partners (UK and EU) dilutes the rationale for 25% (Russia trade-linked) ‘punitive tariffs’ on India. US’ other trade deals are also shaky.
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