The India-EU Free Trade Agreement (FTA) is anticipated to bring about more than just goods trade benefits, as per HSBC Global Investment Research. Described as a significant deal, it is expected to foster larger Foreign Direct Investment (FDI) flows, increased services trade, and strategic diversification between the two parties. In the fiscal year 2025, India-EU goods trade amounted to nearly $140 billion.
The trade relationship between India and the EU is characterized by complementary value chains. While the EU supplies capital goods and industrial inputs to India, including high-end machinery, electronic components, aircraft, and medical devices, India exports labor-intensive and consumer-focused products to the EU such as smartphones, garments, footwear, pharmaceuticals, auto parts, and diamonds, with fuel being a primary commodity.
The FTA aims to liberalize a significant percentage of tariff lines, ranging from 92-97%. It is hoped that this agreement will lead to a doubling of bilateral trade within five years. Various sectors are expected to witness liberalization while ensuring the protection of vital interests on both sides.
Certain sectors like textiles, leather, marine products, gems, and jewelry are poised to benefit from preferential access and tariff elimination under the agreement. Notably, India is projected to reduce import duties on automobiles substantially, potentially from 110% to as low as 10%, with a quota of 250,000 units, thereby granting Indian-made automobiles access to the EU market.
Furthermore, the FTA outlines reductions in tariffs on the EU’s wine exports, potentially decreasing from 150% to 75% initially and eventually to 20%. Both India and the EU will gain preferential access to each other’s agricultural markets, with sensitive sectors like dairy for India and chicken/beef for the EU being safeguarded.
The services trade sector is also expected to benefit from preferential access, particularly in financial services, while labor and investment are likely to see positive impacts from eased mobility norms and enhanced supply chain integration and partnerships, especially in defense. The growth potential is substantial, considering that trade in this region currently represents only 0.6% of global trade.
