Source: The India–EU Free Trade Agreement was concluded on 27 January 2026 at the 16th India–EU Summit and has been officially announced by the Government of India and the European Union leadership. It has been widely covered in government releases and international economic commentary as a landmark trade and strategic agreement.
UPSC Syllabus: GS Paper-3- Indian Economy
Context: The India–EU FTA marks the culmination of nearly two decades of negotiations, reflecting renewed strategic trust between the world’s fourth-largest economy and the EU, the second-largest. By creating a combined market of nearly 2 billion people and about 25% of global GDP.
Salient Features of the India–EU Free Trade Agreement (FTA)
- Enhanced Market Access for Indian Exports
- Over 99% of Indian exports by trade value will receive preferential access to the EU market.
- Reduction of tariff and non-tariff barriers will improve the competitiveness of Indian products and enable deeper integration into European supply chains.
- Boost to Labour-Intensive Sectors
- The FTA provides zero-duty access to nearly USD 33 billion worth of labour-intensive exports, where earlier EU tariffs ranged from 4% to 26%.
- Key beneficiary sectors include:
- Textiles and Apparel: Zero-duty access across all tariff lines to the EU’s USD 263.5 billion market.
- Leather and Footwear: Removal of tariffs up to 17%.
- Marine Products: Elimination of tariffs up to 26% on shrimp and processed seafood.
- Gems and Jewellery: Zero-duty access across the entire trade value.
- Engineering Goods: Preferential access supporting MSME-led industrial clusters.
- These sectors are employment-intensive, particularly benefiting women, artisans, and youth.
- Agricultural and Processed Food Exports
- Preferential access has been extended to products such as tea, coffee, spices, grapes, gherkins, dried onions, and processed foods, supporting farmers and agro-processors.
- Sensitive sectors like dairy, cereals, poultry, and soymeal have been protected to safeguard food security and domestic interests.
- Services, Digital Trade, and Professional Mobility
- The agreement places strong emphasis on services and digital trade, the fastest-growing segments of both economies.
- The EU has opened 144 services subsectors to India, while India has opened 102 subsectors to EU firms, ensuring predictability and non-discriminatory treatment.
- A structured professional mobility framework facilitates movement of Indian professionals, supported by a commitment to conclude Social Security Agreements within five years.
- Strategic Sectors and ‘Make in India’
- Automobile Sector: Gradual reduction of tariffs on EU car imports from 110% to 10%, with phased liberalisation protecting India’s mass-market segment while supporting exports.
- Pharmaceuticals and Medical Devices: Improved access to the EU’s USD 572.3 billion market through tariff reduction and regulatory cooperation, while retaining a TRIPS-compliant framework to protect public health.
- Sustainability and Climate Commitments
- Sustainability is a core pillar, with binding commitments under the Trade and Sustainable Development (TSD) chapter on environment, labour rights, and gender equity.
- Under the Carbon Border Adjustment Mechanism (CBAM), India has secured Most-Favoured-Nation assurances and technical cooperation to support exporters in meeting compliance requirements.
Challenges Related to the India–EU Free Trade Agreement (FTA)
- Regulatory and Compliance Burden: Stringent EU standards on environment, labour, data protection, and product quality may increase compliance costs for Indian MSMEs and exporters.
- Impact of CBAM: The EU’s Carbon Border Adjustment Mechanism could raise costs for carbon-intensive Indian exports such as steel, aluminium, and cement.
- Domestic Industry Concerns: Gradual tariff reduction in sensitive sectors like automobiles may create competitive pressure on domestic manufacturers.
- Services Market Barriers: Despite commitments, language requirements, recognition of qualifications, and domestic regulations in EU member states may limit real market access for Indian professionals.
Way Forward
- Capacity Building for Exporters: Strengthen institutional support to help MSMEs meet EU technical, environmental, and digital compliance standards.
- Green Transition Support: Invest in cleaner technologies and carbon accounting systems to mitigate CBAM-related risks and enhance sustainability.
- Phased and Monitored Implementation: Closely monitor sector-wise impact, especially in automobiles and agriculture, and use safeguard clauses where necessary.
- Deeper Regulatory Cooperation: Enhance mutual recognition of standards, professional qualifications, and digital regulations to realise services-sector potential.
Conclusion
The India–EU FTA is a transformative agreement that significantly expands India’s access to one of the world’s largest and most sophisticated markets. While implementation challenges remain, targeted reforms, institutional preparedness, and sustained regulatory cooperation can help India fully leverage the agreement for inclusive growth, global competitiveness, and long-term strategic partnership with the European Union.
| Question for Practice While India-EU FTA is a transformative agreement however it is marred by several challenges. Elucidate. |
Source- The Hindu
