India–EU Free Trade Agreement Marks a Turning Point in Bilateral Trade and Manufacturing Growth

India and the European Union have finalised one of the most significant Free Trade Agreements in recent global trade history, bringing to a close nearly two decades of negotiations. Concluded on January 27, 2026, the agreement is expected to fundamentally reshape economic ties between the two partners, deepen market integration, and unlock large-scale opportunities across manufacturing, exports, and investment. With bilateral goods trade already at $136.5 billion in FY25 and services trade exceeding $80 billion, the pact strengthens a relationship that is increasingly central to both economies’ long-term growth strategies.

The agreement comes at a time of major shifts in global trade patterns, driven by geopolitical tensions, protectionist trends, and efforts by multinational firms to diversify supply chains. For India, the deal supports its ambition to expand manufacturing, boost exports, and integrate more deeply into global value chains. For the European Union, it secures stronger access to one of the world’s fastest-growing large markets and reinforces its strategic economic footprint in the Indo-Pacific region.

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Strong Export Momentum for India’s Labour-Intensive Industries

A central feature of the agreement is the near-complete opening of the European market to Indian goods. More than 99 percent of India’s exports will receive preferential access, with around 90 percent becoming duty-free immediately and coverage expanding further over the next seven years. This is expected to significantly improve the competitiveness of Indian products in Europe and accelerate export growth across several labour-intensive sectors.

Textiles and apparel are poised to be among the biggest beneficiaries. Indian garments currently face duties of up to 12 percent in the EU, which has long placed Indian exporters at a disadvantage compared to rivals such as Bangladesh and Vietnam. With zero-duty access, Indian textile and apparel manufacturers are expected to regain lost market share and scale up exports into a European market valued at over $260 billion annually. Industry estimates suggest that textile exports to the EU could rise sharply over the medium term, potentially multiplying several times from current levels.

Leather and footwear, which face duties of around 17 percent, are also expected to see a major revival in exports. Marine products, which currently attract tariffs of up to 26 percent, will gain a significant pricing advantage in European markets. Other sectors such as gems and jewellery, toys, sports goods, handicrafts, chemicals, base metals, and consumer goods are also set to benefit from reduced trade barriers, strengthening India’s overall export basket and supporting large-scale employment in MSME-driven clusters across multiple states.

A Timely Alternative as Exporters Face Pressure in the US Market

The timing of the India–EU agreement is particularly important for Indian exporters as access to the US market has become more challenging. Recent tariff increases in the US on certain Indian goods have hurt exports in key sectors such as textiles, leather, gems and jewellery, and marine products. As a result, Europe is increasingly being viewed as a critical alternative growth market for Indian manufacturers and exporters.

Industry bodies and export associations have indicated that EU-bound shipments could see strong double-digit growth in the coming years as firms redirect capacity toward Europe. The agreement is also expected to encourage Indian exporters to invest in quality upgrades, sustainability compliance, and traceability systems to meet stringent EU standards. This alignment with European norms is likely to improve the long-term competitiveness of Indian firms not just in Europe, but across other developed markets as well.

Expanded Market Access for European Industry in India

While India gains on labour-intensive exports, the European Union secures greater access to India’s fast-growing industrial and consumer market. India has agreed to progressively reduce tariffs on over 92 percent of EU tariff lines, covering nearly 98 percent of EU exports by value. This opens new opportunities for European manufacturers of machinery, pharmaceuticals, medical devices, chemicals, aircraft components, plastics, and iron and steel products.

Lower import duties are expected to make high-quality European machinery and industrial equipment more affordable for Indian manufacturers, potentially supporting productivity upgrades and technology adoption in domestic industry. European firms, many of which currently face Indian tariffs ranging from 11 percent to as high as 44 percent, will benefit from improved price competitiveness and a more predictable market access regime.

Automobiles remain one of the most politically and economically sensitive areas of the agreement. Lower-priced European cars are excluded from tariff liberalisation, while higher-end vehicles will be allowed entry under quota-based arrangements with phased tariff reductions. Duties on premium cars are expected to fall gradually to around 10 percent over a five-year period. Electric vehicles will be given limited access in later phases, offering a calibrated opening that balances foreign competition with protection for India’s emerging domestic EV ecosystem.

Limited Agricultural Access and Growing Consumer Opportunities

The agreement also includes limited, quota-based access for selected European agricultural and consumer products. Items such as apples, pears, kiwis, wines, spirits, chocolates, and confectionery will gain improved access to the Indian market, catering to India’s expanding urban and premium consumer base. While the volumes are capped, the provisions signal a gradual opening of India’s agri-food and premium consumption segments to European producers.

At the same time, India has retained safeguards to protect sensitive agricultural sectors and rural livelihoods. This balanced approach reflects an effort to expand consumer choice and trade flows without exposing domestic farmers to excessive competitive pressures.

Strategic and Long-Term Economic Implications

Beyond immediate trade gains, the India–EU FTA carries significant strategic and structural implications. The agreement is expected to play a key role in reshaping supply chains, encouraging foreign direct investment, and strengthening cooperation in standards, sustainability, and regulatory alignment. For India, deeper integration with the EU is likely to support its long-term goal of becoming a global manufacturing hub and a more prominent player in high-value trade.

For the European Union, the pact strengthens economic engagement with a major emerging economy at a time when diversification away from concentrated supply chains has become a strategic priority. The agreement also reinforces political and economic ties in the Indo-Pacific, reflecting the EU’s broader strategy to expand its footprint in the region.

The MGMM Outlook

The India–EU Free Trade Agreement represents a major structural shift in India’s external trade strategy, positioning Europe as a long-term growth market at a time when global trade is becoming more fragmented. With near-complete duty-free access for Indian exports, the agreement significantly strengthens the competitiveness of labour-intensive sectors such as textiles, apparel, leather, marine products, and MSME-driven manufacturing clusters. This creates a strong platform for export-led job creation, deeper integration into global value chains, and a gradual move up the value curve through improved compliance, sustainability standards, and quality upgrades aligned with EU requirements. The scale of market access also reduces India’s overdependence on any single export destination, helping diversify risk amid changing trade policies in other major economies.

At the same time, the agreement supports India’s industrial modernisation by improving access to advanced European machinery, technology, pharmaceuticals, and high-end industrial inputs at more competitive prices. This is likely to accelerate productivity gains, technology transfer, and investment across key manufacturing sectors, while calibrated safeguards in sensitive areas such as automobiles and agriculture preserve space for domestic industry and farmers. Strategically, the pact strengthens India’s position as a preferred manufacturing and investment destination within diversified global supply chains, while reinforcing economic ties with a major economic bloc. Over time, this framework is expected to contribute to sustained industrial growth, higher-value exports, and a stronger role for India in global trade and manufacturing networks.

(Sources: Business Today, India Today, Times of India)