India–EU FTA to Boost Trade Diversification and Expand Export Opportunities: Moody’s

India’s landmark Free Trade Agreement (FTA) with the European Union represents one of the most consequential trade developments in recent decades. Finalised after nearly twenty years of negotiations, the agreement is set to reshape bilateral commerce, expand export opportunities, and strengthen India’s integration into global supply chains. The timing is particularly significant, coming amid rising protectionism and uncertainty in global trade, especially in key markets such as the United States.

Rating agency Moody’s has described the pact as credit positive over the medium to long term, noting that it supports trade diversification and improves the stability of India’s external trade profile. While the immediate macroeconomic impact may be modest, the structural gains are expected to build over time as tariff reductions, regulatory cooperation, and investment flows take effect.

Moody’s cautions that the benefits will unfold gradually and depend on India’s ability to adapt to the EU’s strict standards on product quality, digital governance, and sustainability. | Business Today

Stronger Market Access for Indian Exporters

A central pillar of the agreement is the expansion of market access for Indian goods into the European Union, one of the world’s largest and wealthiest consumer markets. The EU is set to eliminate or sharply reduce tariffs on a vast majority of Indian exports, making Indian products more competitive across a wide range of sectors.

Labour-intensive industries such as textiles, apparel, leather, footwear, marine products, and gems and jewellery are expected to be among the biggest beneficiaries. These sectors had faced relatively high tariffs in Europe, which reduced their price competitiveness compared with countries that already enjoyed preferential trade access. With the FTA in place, Indian exporters are better positioned to regain market share and scale up shipments to the EU.

The agreement is also expected to support micro, small and medium enterprises by linking them more deeply to European buyers and global value chains. Over time, this could translate into higher employment, stronger export clusters, and more resilient export growth across multiple regions in India.

Manufacturing Boost from Cheaper European Inputs

The deal is also expected to deliver important gains for Indian manufacturing through easier access to European machinery, equipment, components, chemicals, and medical devices. Lower tariffs on capital goods and industrial inputs will help reduce production costs and improve operational efficiency for Indian firms.

Access to advanced European technology is expected to support India’s industrial upgrading efforts and strengthen the competitiveness of domestic manufacturers in both domestic and export markets. Analysts note that this could play an important role in helping India move up the value chain, particularly in engineering, electronics, pharmaceuticals, and specialised manufacturing.

By lowering input costs and improving productivity, the FTA aligns closely with India’s broader manufacturing and industrial modernisation goals.

Automotive Sector: Opportunity with Rising Competition

One of the most closely watched areas of the agreement is the gradual opening of India’s highly protected automotive market. Import duties on European cars, which are currently among the highest in the world, will be reduced in a phased and quota-linked manner. This is expected to encourage European automakers to introduce a wider range of premium and technologically advanced models in India.

While this creates new choices for Indian consumers and strengthens competition, it also increases pressure on domestic manufacturers, particularly in higher-end vehicle segments. At the same time, the phased structure of tariff reductions provides domestic firms with time to adapt and enhance their competitiveness.

Electric vehicles and certain sensitive segments are expected to see a more cautious and calibrated opening, allowing India to protect emerging domestic capabilities while still benefiting from global technology and investment.

Services, Investment and Strategic Realignment

Beyond trade in goods, the agreement strengthens cooperation in services, professional mobility, regulatory alignment, and intellectual property. India’s information technology and business services sector is expected to gain from deeper access to European markets, where demand for digital and professional services continues to grow.

The pact is also expected to support higher levels of foreign direct investment from European companies seeking to expand their footprint in India. With global supply chains being reconfigured, the agreement enhances India’s attractiveness as a long-term investment destination and manufacturing base for Europe-focused production and exports.

From a strategic perspective, the FTA reflects a broader effort by both India and the EU to diversify economic partnerships and reduce over-reliance on a limited number of markets. It strengthens economic security on both sides and positions India as a key partner in Europe’s long-term Asia strategy.

The MGMM Outlook

India’s Free Trade Agreement with the European Union marks a pivotal moment for the country’s trade and manufacturing landscape. By eliminating or sharply reducing tariffs on a broad range of Indian exports, particularly labour-intensive sectors such as textiles, leather, apparel, marine products, and gems and jewellery, the pact strengthens India’s access to one of the world’s wealthiest markets. This enhanced market access is expected to benefit micro, small, and medium enterprises by connecting them to European buyers and global value chains, fostering higher employment, more robust export clusters, and sustainable growth in Indian exports over time.

The agreement also promises substantial gains for Indian manufacturing, offering easier access to European machinery, components, and industrial inputs that can lower production costs and improve competitiveness. Sectors like engineering, electronics, pharmaceuticals, and specialised manufacturing stand to benefit from advanced European technology, supporting industrial upgrading and movement up the global value chain. In the automotive sector, phased tariff reductions will encourage European automakers to introduce premium models, driving competition while allowing domestic firms time to enhance capabilities. Alongside deeper integration in services, investment, and regulatory cooperation, the FTA positions India as a strategic partner for Europe while diversifying economic linkages and boosting long-term resilience in trade and industry.

(Sources: Business Standard, Economic Times, Business Today)