India-EU Free Trade Agreement Nears Finalisation: Key Sectors to Watch
India and the European Union are close to finalising a long-pending Free Trade Agreement (FTA), according to a strategy note by Jefferies. Talks between the two sides began in 2007, stalled in 2013, and picked up pace again in 2022 as both parties pushed for a broad trade deal.
Jefferies said the structure of the proposed India-EU FTA looks similar to the recently signed India-UK trade agreement. The focus is mainly on goods trade, while services will remain an important area to watch. Politically sensitive sectors like agriculture and dairy are likely to remain outside the core agreement.
India-EU Trade Is Already Large
Trade between India and the EU is already significant. Annual goods trade is estimated at around $130 billion, similar to India’s trade with the US or China. India exports about $75 billion worth of goods to the EU, which makes up nearly 17% of its total exports.
Services trade between India and the EU is even bigger, at around $72 billion, with India enjoying a services trade surplus of nearly $9 billion. Since 2022, higher exports of petroleum products and electronics have helped India move into a small trade surplus with the EU.
Jefferies believes a comprehensive FTA could further boost trade, especially in manufacturing-led and labour-intensive sectors.
Textiles Likely to Be the Biggest Winner
The textiles and apparel sector is expected to benefit the most from the India-EU FTA. The EU imports over $125 billion worth of textiles and apparel every year, but India currently has only a 5-6% market share.
China dominates this market with about 30% share, while Bangladesh and Pakistan together hold around 20%. Jefferies said zero-tariff access could help India gain market share, especially as Indian textile exports face high tariffs in the US, making the EU a more attractive export destination.
Automobiles and Aviation: Limited Upside
In the automobile sector, the EU wants lower tariffs in India, where car import duties can go up to 100%. While gradual tariff cuts could help, Jefferies noted that many European luxury cars already enter India as CKD units, which limits additional gains. India’s highly competitive mass market auto space also reduces opportunities for EU players.
For aviation, India currently charges 2.5-10% customs duty on aircraft and parts. While tariff cuts could reduce costs, the overall benefit may be limited as GST offsets much of the impact.
Key Risks and Opportunities
Jefferies highlighted non-tariff barriers, such as the EU’s Carbon Border Adjustment Mechanism (CBAM), as a key risk for Indian exporters. On the positive side, easier pharma regulations and better mobility rules for Indian professionals could provide meaningful long-term benefits if included in the final agreement.
