India-EU Free Trade Agreement (FTA)

The recently concluded India-EU Free Trade Agreement (FTA) has strategic, economic, and Regulatory Dimensions. Read here to learn more.

The conclusion of negotiations for a comprehensive Free Trade Agreement (FTA) between India and the European Union marks a watershed moment in India’s external economic engagement. Coming at a time of global trade fragmentation, rising protectionism, and the growing use of economic instruments for strategic leverage, the India-EU FTA goes far beyond conventional tariff liberalisation.

It seeks to integrate two major democratic economic blocs, together accounting for nearly a quarter of global GDP, through deeper market access, services mobility, regulatory cooperation, and strategic alignment.

However, the agreement’s transformative potential will ultimately depend on how effectively India navigates regulatory asymmetries, climate-linked non-tariff barriers, and domestic preparedness for high-standard markets.

Key Highlights of the India-EU Free Trade Agreement

1. Market Access and Trade Liberalisation

• The European Union has committed to opening 97% of its tariff lines, covering 5% of India’s exports by value, representing one of the most extensive preferential access arrangements ever offered to India.
• Zero-duty access for labour-intensive sectors such as textiles, apparel, leather, footwear, marine products, gems and jewellery is expected to benefit exports worth nearly USD 33 billion.
• On the Indian side, market access has been offered on 1% of tariff lines, covering 97.5% of EU exports, with calibrated liberalisation to protect sensitive sectors such as dairy, cereals, poultry, and MSME-dominated industries.
• High-impact sectors such as automobiles, wines, and spirits are subject to gradual tariff reductions.

2. Services and Professional Mobility

• A defining feature of the agreement is its strong focus on services, an area where India enjoys a comparative advantage.
• The EU has made binding commitments across 144 services subsectors, providing regulatory certainty and national treatment for Indian service providers in IT/ITeS, digital services, professional services, education, and business services.
• Equally significant is the establishment of a professional mobility framework, facilitating the temporary movement of contractual service suppliers, independent professionals, and intra-corporate transferees.
• This partially addresses India’s long-standing demand for greater recognition of skill mobility as part of trade agreements.

3. Regulatory Cooperation and Standards Alignment

• The FTA introduces enhanced cooperation in Sanitary and Phytosanitary (SPS) measures and Technical Barriers to Trade (TBT), aiming to reduce uncertainty and compliance costs through mutual understanding, conformity assessment recognition, and early-warning mechanisms.
• MSME-friendly rules of origin, self-certification mechanisms, and flexibilities for sectors such as seafood and aluminium are intended to integrate Indian producers into EU-centric global value chains.

Why the India-EU FTA Matters Now

The conclusion of the India-EU FTA negotiations must be seen against a backdrop of:

• Weaponisation of trade (sanctions, export controls, tech chokepoints)
• Fragmenting globalisation (friend-shoring, near-shoring)
• Climate-linked regulation becoming trade policy
• China-West decoupling pressures

Unlike earlier FTAs driven purely by tariff reduction, this agreement is a 21st-century geoeconomic compact, combining trade, standards, technology, climate, and strategic trust.

Structural Significance of the Agreement

Market Access: Depth vs Real Gains

On paper, the EU’s offer-97% tariff lines, 99.5% export value-is unprecedented for India. However:

• Over three-fourths of Indian exports already faced tariffs below 1% due to MFN rates.
• Hence, incremental gains are concentrated in:
  • Labour-intensive sectors
  • MSME-driven exports
  • Products facing tariff peaks (textiles, footwear, leather)

The FTA’s real value lies less in tariffs, more in predictability, scale, and rule-setting power.

Labour-Intensive Manufacturing: Social Impact

Zero-duty access for textiles, apparel, marine products, gems & jewellery is crucial because:

• These sectors:
  • Employ millions of low-skilled and semi-skilled workers
  • Have a high female workforce participation
• Competes directly with:
  • Bangladesh (EBA access)
  • Vietnam (EU-Vietnam FTA)

Without this FTA, India risked structural marginalisation in EU value chains.

The FTA acts as a jobs-and-inclusion agreement, not merely a trade deal.

Why Services Are India’s strength

Goods trade asymmetry (high Indian tariffs vs low EU tariffs) is structurally unavoidable. India compensates through:

• 144 EU services subsectors opened
• Legal certainty for:
  • IT/ITeS
  • Digital services
  • Professional and business services
• Temporary mobility frameworks for:
  • Contractual service suppliers
  • Independent professionals
  • Intra-corporate transferees

This is critical because:

• Services form ~55% of India’s GDP
• Europe is a high-value, regulation-heavy market
• Regulatory certainty matters more than tariffs

India is trading tariff concessions in goods for long-term services dominance.

Regulatory Power Politics: The Core Challenge

EU’s “Green Rules” as Trade Weapons

The EU increasingly governs trade through regulation:

These are non-tariff barriers with extra-territorial reach.

Tariff liberalisation gains may be neutralised or reversed by compliance costs.

CBAM:

• From 2026, CBAM will impose carbon-cost equivalents.
• Indian steel/aluminium could face 20–35% cost penalties.
• This directly contradicts the spirit of tariff elimination.

Normative contradiction:

• EU granted carve-outs to the US
• Developing countries face stricter compliance

This raises the issue of climate justice vs green protectionism.

“Brussels Effect”: Threat or Opportunity?

The EU’s regulatory dominance exports its standards globally.

Short-term challenges:

• High compliance costs
• MSME exclusion risks
• Supply-chain restructuring

Long-term gains:

• Indian firms upgrade to:
  • Global quality norms
  • Sustainability certifications
• Easier access to:
  • US, Japan, OECD markets

Historical parallel:

• Japan and South Korea used Western standards pressure to climb value chains.
• India can replicate this if supported by state capacity.

Strategic & Geopolitical Implications

China-Plus-One and Trusted Supply Chains:

• EU seeks diversification away from China.
• India offers:
  • Scale
  • Democracy
  • Strategic autonomy
  • Talent depth

FTA institutionalises India as a systemic alternative, not just a low-cost producer.

Trade as Strategic Alignment:

The FTA is intertwined with:

• India-EU Trade and Technology Council
• IMEC corridor
• Indo-Pacific Oceans Initiative
• Defence and maritime cooperation

This transforms the relationship from Transactional trade to Strategic interdependence

Challenges in management

• Deindustrialisation risk if EU imports outcompete MSMEs
• Regulatory capture by large firms able to comply
• Farmer exclusion due to traceability burdens
• Trade disputes will explode if NTBs proliferate

Without domestic preparedness, the FTA could deepen asymmetries rather than resolve them.

Policy makeover in India

1. Carbon competitiveness strategy (green steel, green aluminium)
2. MSME compliance support (digital traceability, certification subsidies)
3. Regulatory diplomacy parity in carve-outs
4. Skill & services mobility diplomacy
5. State-level readiness for EU market integration

FTA success will be decided inside India, not Brussels.

Conclusion

The India-EU Free Trade Agreement represents a decisive shift from transactional trade diplomacy to strategic economic integration.

While it opens unprecedented opportunities in labour-intensive manufacturing, services, and technology cooperation, its success will hinge on managing regulatory asymmetries and ensuring that sustainability norms do not become instruments of disguised protectionism.

If complemented by domestic reforms, regulatory preparedness, and strategic diplomacy, the FTA can catalyse India’s integration into high-value global supply chains and its emergence as a rule-shaper rather than a rule-taker in the evolving global trade order.

Related articles:

• India-UK FTA
• European Free Trade Association (EFTA)