India-EU FTA: Tariff shocks, geopolitical disruptions and economic imperative to diversify have convinced India and the EU to fructify a free trade agreement ink after years of protracted negotiations and stalemate since 2007. Pragmatism has prevailed over India and the EU to narrow down differences and open the doors to a new chapter of economic engagement with a pact that promises to cut down tariffs, deepen value-chain integration and increase trade volumes.
As India and the EU chart out a new roadmap of trade diversification and liberalisation, the rewards are accompanied by risks from non-tariff barriers and service restrictions that India would do well to guard against.
There is, however, no doubt that the India-EU FTA is strategically timed amidst a common backdrop of rising protectionism, geopolitical fragmentation and weaponisation of trade. “The EU pact would be India’s ninth trade agreement in four years, underscoring India’s accelerated FTA strategy amid global protectionism,” notes Ajay Srivastava, founder, Global Trade Research Institute.
“The FTA unlocks promises restored market access, relief from levies for labour-intensive exports and new opportunities in services. For the EU, it offers scale, growth and supply-chain diversification beyond China,” says Srivastava. India–EU goods trade crossed USD136 billion in FY2025, built on complementary value chains rather than direct competition.
EU Demands On Tariffs
With stakes high on both bilateral and global fronts for India and the EU, expectations of each side are high. In goods trade, the EU is pressing India to eliminate tariffs on more than 95 per cent of its exports, a level New Delhi sees as excessive. India is reportedly willing to liberalise closer to 90 per cent.
Both sides have agreed to exclude agriculture and dairy, an acknowledgement that the EU’s push to cut tariffs on cheese and skimmed milk powder crosses a red line for India’s farm sector. Tariff cuts on the EU’s wine and whiskey are another sensitive area. Imported wines in India face a 150 per cent tariff, which European producers want reduced to 10–20 per cent.
In automobiles, European carmakers want India to cut import duties on fully built vehicles from 100-125 per cent to 10-20 per cent, which would sharply reduce prices of European luxury cars. The European Union already exports more than USD 2 billion a year in cars and auto parts to India, mostly as CKD kits that face a 15 per cent duty when assembled locally.
If both sides blink, the broad gains for India are indeed significant. As the EU is a customs union, the agreement would give India preferential access to all 27 EU countries under a single framework, representing one of the world’s richest and most stable markets with a GDP of roughly €18–22 trillion and 450 million high-income consumers at a time when global trade is turning more protectionist.
In FY2025, India exported about USD 76 billion of goods to the EU while importing USD 61 billion, earning a trade surplus, but the withdrawal of EU GSP benefits in 2023 has eroded competitiveness for many Indian products.
GSP Worries
There are now fresh concerns regarding an EU notification extending the withdrawal of GSP benefits on certain product categories from India, with approximately 87 per cent of India’s export value to the EU now falling under the broad product categories mentioned in the EU notification.
The Federation of Indian Export Organisations (FIEO), however, allays the fear that 87 per cent of Indian exports are facing higher duties. According to FIEO, the EU notification refers to broad product groupings, within which several products already attract zero customs duty under the EU’s Most Favoured Nation regime, and therefore remain unaffected by the withdrawal of GSP preferences.
Many specific tariff lines within these broad categories continue to be eligible for EU GSP benefits, subject to applicable rules of origin and conditions. Moreover, the current notification merely extends the validity of the earlier suspension of preferences, which has been in place for these product groups for the past few years, FIEO points out, assuring that no additional products have been newly brought under GSP withdrawal through this extension.
Indian goods already face relatively low average tariffs in the EU, about 3.8 per cent on USD 75.9 billion of exports in FY2025, but key labour-intensive sectors such as leather, footwear and auto parts face EU tariffs of 6–20 per cent, while textiles and garments face duties of around 10 per cent, leaving Indian exporters at a disadvantage.
By contrast, Bangladesh enjoys zero-duty access under the EU’s preference schemes, while Vietnam benefits from tariff-free entry under its FTA with Europe. An India–EU FTA would cut or eliminate these duties, improving India’s competitiveness and allowing its exporters, especially in textiles and garments, to compete on a more level footing in the EU market.
India is looking at the removal of these tariffs to deliver clear export gains.
Textiles, Auto Eyes Big Win
“The India–EU FTA represents a once-in-a-generation opportunity for India’s garment sector, which currently exports over USD 4.5 billion worth of apparel to the EU. Indian garment exporters have long faced tariff disadvantages compared to competing nations such as Bangladesh, Vietnam, and Turkey,” points out Chairman, Apparel Export Promotion Council (AEPC), A Sakthivel.
“The FTA is also crucial for employment-led growth, strengthening MSMEs and enhancing India’s global competitiveness in the apparel sector,” he adds.
For the European Union, the FTA with India is expected to deliver what Europe increasingly lacks at home: scale, growth and long-term demand. India, with a USD 4.2 trillion economy and a population of 1.4 billion, is among the world’s fastest-growing major markets but remains protected by high tariffs and regulatory barriers.
Goods from the EU face much higher barriers in India: a weighted average tariff of about 9.3 per cent on USD 60.7 billion of exports, with particularly high duties on automobiles, parts amounting to 35.5 per cent, plastics at 10.4 per cent and chemicals and pharmaceuticals at 9.9 per cent, significantly raising market-entry costs for European firms. Reducing these tariffs would improve EU access to Indian markets.
An FTA would unlock significant opportunities for European Union exporters in aircraft, machinery, chemicals and other high-value manufactured goods, while expanding access in services, government procurement and investment.
Beyond commerce, closer trade ties with India strengthen the EU’s strategic objective of diversifying supply chains, reducing over-reliance on China, and anchoring a durable economic and geopolitical presence in Asia’s fastest-growing large economy.
Deal To Benefit Both Partners
The stage for a mutually beneficial FTA is set with both countries building on the trade-related economic complementarities, which will allow the agreement to lower costs and expand trade rather than threaten or harm domestic industry.
India exports labour-intensive, downstream products to the EU, such as smartphones, garments, footwear, tyres, pharmaceuticals, auto parts, refined fuels, and cut diamonds, which largely substitute the EU’s imports from third countries rather than compete with EU manufacturing, which has long offshored these activities.
Refined petroleum products topped exports at USD15.0 billion in FY2025, led by diesel at USD 9.3 billion and aviation turbine fuel at USD 5.4 billion, while in textiles and apparel, exports included garments worth USD 4.5 billion alongside textiles of USD 1.6 billion and made-ups of USD1.2 billion, sectors that Europe largely exited decades ago.
Other major items were machinery and computers exports of USD 5.0 billion, turbojets of USD 756 million, organic chemicals of USD 5.1 billion, iron and steel of USD 4.9 billion and electronics shipments, which reached USD 11.3 billion, including smartphones worth USD 4.3 billion, all reflecting India’s role as a scale manufacturing and assembly hub.
“India–EU merchandise trade is therefore being seen not as a contest for market share, but as a production partnership. European machinery, components and precision inputs raise productivity in Indian factories, while Indian scale manufacturing delivers affordable, consumer-ready products to Europe,” says Srivastava.
Irritants Remain
There are still quite a few discordant notes in the run-up to the India-EU deal. A prominent non-tariff measure India faces in the EU is the safeguard duties on steel, which were first imposed in 2018 and then extended this year till 2026.
The EU is an important export market for Indian steel, particularly after the uncertainty arising in the exports to the US due to the tariffs imposed by the US.
Pankaj Chadha, Chairman of the Engineering Exports Promotion Council India, draws attention to the new EU proposal to reduce quotas and increase out-of-quota tariffs in case of steel and aluminium products to 50 per cent as a cause for concern.
“The existing quota already poses a challenge for the exporters, as our volumes are much higher. The EU has also kept these products out of the purview of its trade agreement negotiations with India,” says Chadha, reflecting the pressing concerns of the industry about the EU tariff rate quota (TRQ). The EEPC India chairman has sought exemption for stainless-steel long products from TRQs, given their MSME dominance and strategic importance.
“It may be ensured that out-of-quota tariffs do not exceed 25%, and the same is gradually phased out over five to six years, especially considering the ongoing FTA negotiations with the EU,” suggests Chadha.
The EU is seeking access to India’s USD 600 billion government procurement market, including contracts awarded by the central government and public sector undertakings. According to Atul Kaushik, GDC fellow RIS, opening up Government procurement could be considered on the lines of the deals India has crafted with the UAE and UK recently, thus protecting the MSMEs of India.
Another contentious area is deeper services liberalisation, especially in IT and other skill-intensive sectors, which would allow India to leverage its large, skilled workforce and expand services exports. The EU limits remote delivery of services by requiring Indian firms to set up local offices and by imposing high minimum salary thresholds for Indian professionals.
India argues that these conditions defeat the purpose of digital trade and weaken its IT exports, which rely heavily on cross-border delivery. India is also seeking EU recognition as a “data-secure” country under EU’s General Data Protection Regulation (GDPR), which would allow smoother transfer of EU citizens’ data.
Without it, Indian firms face higher compliance costs than competitors from Japan or South Korea. The EU, however, wants India to adopt privacy rules closer to GDPR. India is also pressing for easier short-term business visas, totalisation agreements to avoid double social security contributions, and mutual recognition of professional qualifications, while the EU is seeking broader access to India’s banking, legal and financial services markets.
(Mukherjee is a contributing writer for ABP Live English. A business journalist for more than 15 years, she has written extensively on the economy, policy, and international relations in Indian newspapers and magazines)