The deal, confirmed by Prime Minister Narendra Modi on Tuesday, comes after negotiations were relaunched in June 2022 following a nearly nine-year hiatus. It eliminates or reduces tariffs on almost 97 per cent of EU exports entering India, offering significant opportunities for European businesses while enhancing trade prospects for India.
Boosting Trade Amid Global Challenges
The EU is India’s largest trading partner, with bilateral trade in goods totaling $135 billion in 2023-24. The agreement comes at a critical time when countries are seeking to de-risk their supply chains amid trade disruptions caused by previous US administration policies.
Under the deal, tariffs on 96.6 per cent of EU goods exported to India will be reduced or eliminated, saving up to €4 billion annually in duties. Key benefits for EU exporters include a competitive edge in the Indian market, privileged access for service providers in sectors such as financial and maritime services, simplified customs procedures, stronger intellectual property protection, and dedicated support for small businesses.
Cheaper Goods for Indian Consumers
The FTA is expected to significantly lower costs for Indian consumers. Tariffs on EU cars will drop from a high of 110 per cent to as low as 10 per cent, while duties on wines will progressively fall from 150 per cent to 20 per cent. Processed foods such as pasta and chocolate, currently taxed at 50 per cent, will eventually see tariffs completely removed.
Opportunities for Indian Exporters
The deal also opens new doors for Indian exporters. At launch, the EU will remove tariffs on 90 per cent of Indian goods, extending zero tariffs to 93 per cent within seven years. Partial cuts and quotas will apply to about six per cent of Indian goods. Overall, 99.5 per cent of bilateral trade will benefit from some form of tariff concession.
Key Indian exports to the EU that will see reduced tariffs include marine products, chemicals, plastics and rubber, leather and footwear, textiles, apparel, base metals, and gems and jewellery. Labour-intensive sectors like textiles, leather, chemicals, electronics, and jewellery are expected to benefit the most, as these industries face minimal competition from European manufacturers.
A Strategic Counterweight
The India-EU trade deal also represents a strategic response to previous US trade policies under former President Donald Trump. With tariffs of up to 50 per cent imposed on Indian imports to the US, India and the EU are now strengthening economic ties through a more open trade framework.
Prime Minister Modi described the agreement as a perfect example of partnership between two major global economies, stating that it represents 25 per cent of global GDP and one-third of global trade. He emphasized that the FTA reflects a shared commitment to democracy and the rule of law, complementing India’s agreements with Britain and the European Free Trade Association (EFTA).
EU Commission President Ursula von der Leyen called the signing historic, declaring, “We have concluded the mother of all deals. We have created a free trade zone of two billion people, with both sides set to benefit.” She added that this is just the beginning of a stronger strategic relationship between India and the EU.
With its far-reaching economic and strategic implications, the India-EU trade deal is poised to reshape global trade dynamics, offering immense opportunities for businesses and consumers on both sides.
