Guarded Liberalisation
The conclusion of the India–European Union free trade agreement after more than two decades of negotiations is a moment of strategic significance that goes far beyond tariff lines and trade volumes. It reflects a convergence of economic interests at a time when global trade is fragmenting, supply chains are being re-drawn, and large economies are seeking reliable partners rather than maximal market access at any cost. For India, the agreement is less about dramatic liberalisation and more about disciplined integration—opening doors where competitiveness exists, holding firm where domestic livelihoods remain vulnerable, and using trade as an instrument of long-term industrial and strategic policy rather than short-term headline gains.
At its core, the agreement decisively tilts in India’s favour on goods exports. Almost the entire universe of Indian merchandise exports—over 93 per cent—will enjoy zero-duty access to the European Union, with most concessions kicking in from the very first day of implementation. This is no small achievement in a bloc that remains one of the world’s most demanding markets in terms of standards, compliance, and regulatory scrutiny. Sectors that are labour-intensive and employment-rich—textiles, apparel, footwear, leather, gems and jewellery, furniture, toys, and sports goods—stand to benefit most. These are precisely the sectors where India’s comparative advantage lies and where export growth can translate into jobs rather than just higher margins for capital. With EU tariffs dropping from an already modest average of 3.8 per cent to near zero, Indian exporters gain a competitive edge over rivals from countries that do not enjoy preferential access, particularly in marine products, chemicals, plastics, and rubber where duties were still meaningful.
Equally important is the sequencing of India’s own tariff reductions. India has agreed to liberalise 97.5 per cent of trade value for the EU, but crucially, only 30 per cent of that opens up immediately. The rest is spread over a decade, allowing domestic industry time to adjust, upgrade, and absorb competition. This calibrated approach reflects lessons learnt from earlier trade agreements, where sudden tariff cuts exposed Indian manufacturers to imports without adequate preparation. Here, liberalisation is gradual, predictable, and aligned with domestic production realities. Sensitive sectors such as dairy, cereals, and soya remain protected, acknowledging both political economy constraints and food security concerns. The EU, too, has drawn its own red lines in agriculture, underscoring that even advanced economies are selective when domestic constituencies are at stake.
The most politically sensitive part of the agreement lies in automobiles and electric vehicles, and the final outcome reflects careful balancing rather than capitulation. India’s high import duties on automobiles have long been a point of contention, but the agreement avoids opening the floodgates. Duty concessions are quota-based, restricted to higher-value vehicles, and explicitly exclude the mass market segment below Rs 25 lakh where domestic manufacturers dominate. This preserves India’s small-car ecosystem while still offering European manufacturers a structured entry into a niche, premium market. In electric vehicles, the delayed start to concessions and differentiated duty reductions signal India’s intent to nurture its domestic EV ecosystem before exposing it to full-scale competition. This is trade policy as industrial policy, not trade policy as ideology.
Services, often the quieter but more consequential component of modern trade agreements, are where India gains strategic depth. The EU’s opening of 144 out of 155 services sub-sectors, coupled with commitments on student mobility and post-study work, addresses long-standing Indian concerns about market access beyond goods. For a country whose global economic footprint is increasingly services-driven—from IT and professional services to education and digital platforms—this matters as much as tariff cuts on merchandise. While mobility commitments are often hedged and administratively complex, their inclusion signals a recognition that talent flows are integral to economic integration, not peripheral to it.
Beyond tariffs and market access, the architecture of the agreement reflects contemporary trade realities. Chapters on digital trade, technical barriers, sanitary standards, and intellectual property indicate an attempt to reduce friction not just at the border but behind it. At the same time, the absence of chapters on energy, critical minerals, and government procurement reveals the limits of consensus. These omissions are telling. They suggest that while both sides are comfortable deepening trade, they are still cautious about entangling strategic sectors that intersect with security, industrial autonomy, and long-term resource control.
The projected expansion of bilateral trade—to over USD 200 billion in goods and USD 125 billion in services within a few years—should be treated with cautious optimism. Trade agreements create potential; they do not automatically deliver outcomes. Indian exporters will need to meet exacting European standards, navigate regulatory regimes, and invest in quality and compliance. Domestic reforms in logistics, ports, customs procedures, and standards certification will determine how much of the promised market access is actually realised. For the EU, success will depend on whether European firms see India not just as an export destination but as a manufacturing and innovation partner, particularly in high-value segments.
Ultimately, this agreement marks a shift in India’s trade posture from defensiveness to selective confidence. It signals that India is willing to engage deeply with advanced economies on its own terms, aligning openness with domestic capability and strategic caution. In a world where trade is increasingly shaped by geopolitics, trust deficits, and supply-chain anxieties, the India–EU pact stands out as a negotiated, balanced, and pragmatic compact. Its true test will not be in celebratory labels or headline numbers, but in whether it strengthens India’s productive capacity, creates jobs, and embeds the country more securely in resilient global value chains without sacrificing policy autonomy.
