Context:

Recently, India and the European Union (EU) have finalised a landmark Free Trade Agreement (FTA) after nearly two decades of negotiations.

Key Features of the Deal:

1. Tariff Elimination on Goods

• • • • Tariffs on approximately 96–99% of trade by value will be phased down or eliminated over time.
      • Duties on EU-made automobiles could be reduced from up to 110% to around 10%, subject to quota limits.
      • Tariffs on products such as wine, beer, and olive oil will see significant reductions.

2. Services Liberalisation

• • • • European firms will gain enhanced market access in sectors such as financial services and maritime services.

3. Exclusions and Safeguards

• • • • Certain sensitive agricultural products, such as sugar and selected dairy items, remain excluded to protect domestic interests.

Background:

The idea of an India–EU FTA was first proposed in 2007 but stalled for several years due to differences over market access, tariff levels, and non-tariff barriers. A significant gap in expectations on both sides delayed progress for over a decade. Negotiations resumed in 2022 with renewed political momentum, culminating in a political agreement in 2026.

Benefits and Implications:

For India:

• • • • Export Expansion: Indian sectors such as textiles, leather, chemicals, gems and jewellery, and marine products will gain improved access to EU markets, potentially leading to a substantial increase in exports.
      • Enhanced Competitiveness: Reduced EU tariffs will make Indian products more competitive in European markets, helping reverse trade share losses to competitors such as Bangladesh and Vietnam.
      • Deeper Integration into Global Value Chains: Improved access to advanced European inputs and technologies could strengthen India’s manufacturing capabilities and export performance.
      • Services and Investment Flows: Indian firms will benefit from better access to EU services markets, while European investment is likely to increase in India’s expanding economy.

For the European Union:

• • • • Access to India’s Large Market: The EU gains tariff relief and expanded access to a rapidly growing consumer market of nearly 1.4 billion people.
      • Export Growth and Duty Savings: EU exporters are expected to save up to €4 billion annually in duties as trade barriers are reduced.
      • Services Gains and Regulatory Cooperation: European firms stand to benefit from stronger intellectual property protections and eased market entry in financial and professional services.

Strategic and Geopolitical Impact:

• • • The agreement strengthens India’s trade diversification strategy amid global trade tensions and rising protectionism in several major economies.
    • It signals a deepening strategic partnership between India and the EU at a time of significant geopolitical uncertainty.

Challenges and Considerations:

• • • Ratification Process: The agreement requires approval by EU member states and Indian authorities before it can enter into force.
    • Agricultural Sensitivities: Limited liberalisation in agriculture reflects domestic political, economic, and social considerations.
    • Adjustment Pressures: Certain Indian industries may face short-term competitive pressures from EU imports, necessitating supportive policy measures.

Conclusion:

The India–EU Free Trade Agreement represents a historic milestone in trade and diplomacy. It enhances India’s export potential, competitiveness, and global economic integration, while opening the EU to one of the world’s fastest-growing markets. Once ratified, the agreement has the potential to reshape trade flows, economic strategies, and geopolitical alignments over the coming decade.