Prime Minister Narendra Modi with European Council President Antonio Costa, left, and European Commission President Ursula von der Leyen, right, during their meeting at the Hyderabad House, in New Delhi on Tuesday (file photo)
| Photo Credit:
Salman Ali
After two decades of tedious negotiations, it is truly an achievement for India and the European Union (EU) to have finally concluded their free trade agreement negotiations; the deal is expected to come alive by early 2027. What remains to be sorted out is ‘legal scrubbing’ — which implies not just honing the language of the agreement for precision, but also securing more clarity on the ‘standards’ or non-tariff barriers set by EU for goods imports.
The fact sheet issued by the Indian side on Tuesday suggests major market access gains for India. But the EU’s factsheet refers to certain concessions it has secured with respect to ‘standards’ and services, which are not clear at this stage. Indeed, the goods market gains for India should be weighed against the costs imposed under the Carbon Border Adjustment Mechanism. The EU has not budged an inch. Under this, hard to abate sectors such as iron and steel, aluminium, cement and fertilizer will have to abide by EU emission laws by reducing emissions and convincingly documenting the same. This move is expected to raise costs by 15-20 per cent, which could offset gains from the tariff cuts.
Meanwhile, the deal (where EU will eliminate tariffs on 90.7 per cent of India’s exports with immediate effect) betters market access for India’s labour intensive sectors, which could account for 40 per cent of exports to EU. In the case of textiles and garments, India ($7.2 billion exports in FY25) will now be better placed to compete with Bangladesh, Pakistan and Turkiye, which have trade pacts with the EU. India has opened up its tariffs with immediate effect on 49.6 per cent of tariff lines (much lower than EU’s offer), while on another 39.6 per cent of EU imports there is a 5-10 year transition to move to zero tariff. This transition period is fair, as India is cutting its tariffs from steeper levels than the EU. Notably, agriculture and dairy have been kept out. So, this looks like a good deal for India on goods market access, even after accounting for what has been conceded on cars, some agri-processed goods, machinery and electrical equipment, aircraft, medical equipment, plastics and pharma.
In services, however, the EU claims that India has gone further in giving concessions than to “any other trading partner”, including UK and Australia. It has asserted strict enforcement of sanitary and phytosanitary rules and IP rights. Disconcertingly, technical barriers to trade include environment, workers’ rights, labour rights and women’s empowerment. It is not clear whether these inclusions have been agreed upon, or are a work in progress. India needs to negotiate this clutter. There is a broader economics of FTAs that needs to be factored in. Indian businesses must be able to produce at scale and competitive costs to take worthwhile advantage of any FTA. While there have been improvements in logistics, it is important that industries operate in a hassle-free plug and play environment. The Centre’s job starts now.
Published on January 28, 2026