India-EU FTA to Boost Textiles, Pharma; Tariffs Slashed on 90% Goods

India's recently concluded FTA with the EU will eliminate tariffs on over 90% of goods. The deal, finalised in Jan 2026, is expected to provide significant gains for key sectors like textiles, pharmaceuticals, chemicals, and agriculture.

India's recently concluded Free Trade Agreement (FTA) with the European Union is expected to deliver significant gains for several Indian sectors, including textiles, pharmaceuticals, chemicals, agriculture, leather, and marine products, as the EU remains one of India's largest and most important trading partners.

The India-EU FTA, finalised in January 2026 after long negotiations, eliminates tariffs on over 90 per cent of goods traded between the two sides. According to a sectoral analysis by credit rating agency ICRA, the agreement grants India preferential zero-duty access on 97 per cent of EU tariff lines, covering nearly 99.5 per cent of the value of Indian exports, while India will cut or eliminate tariffs on 92 per cent of its tariff lines for EU imports.

Sector-by-Sector Impact Analysis

The textile and apparel sector is expected to be among the biggest beneficiaries. ICRA noted that duty-free access to the EU market will place Indian exporters on par with competitors such as Bangladesh, Vietnam, and Turkey, which previously enjoyed tariff advantages. Apparel and home textiles, in particular, are expected to see improved export competitiveness and higher long-term investment.

Boost for Pharmaceuticals and Healthcare

Pharmaceuticals and healthcare products are also set to benefit under the EU FTA. The EU currently accounts for around 12 per cent of India's pharmaceutical exports and 46 per cent of its pharma imports. Removal of EU import tariffs on Indian medicines is expected to boost export competitiveness, while lower EU tariffs on imports of medicines, bulk drugs, and medical devices will reduce domestic input and healthcare costs, ICRA said.

Enhanced Competitiveness for Chemicals

The EU is a key destination for India's organic chemical exports, accounting for about a quarter of shipments. Following the FTA's implementation, Indian chemical companies are expected to improve their competitiveness against global suppliers, including those from China.

Gains for Engineering, Agriculture, and Marine Exports

Engineering goods such as iron and steel, machinery, and automotive components will also benefit from improved market access, although finished steel exports may continue to face challenges due to the EU's Carbon Border Adjustment Mechanism (CBAM), which appears to fall outside the scope of the current deal. Agricultural and processed food exports, such as tea, coffee, spices, fruits, vegetables, and marine products, will gain preferential access to the EU market. Marine exports are expected to benefit from tariff reductions of up to 26 per cent, supporting coastal employment and export growth.

Impact on Labour-Intensive and Safeguarded Sectors

Labour-intensive sectors such as leather, footwear, furniture, and rubber products are also expected to see gains. At the same time, sensitive sectors, including dairy, cereals, and poultry, have been safeguarded to protect farmers and MSMEs.

Overall Economic Impact and Future Outlook

Merchandise trade between India and the EU grew at a compound annual growth rate of 7 per cent between 2015-16 and 2024-25, with India maintaining a trade surplus since 2020-21. "The FTA enhances India's competitiveness across labour-intensive, agricultural, engineering, services, and advanced manufacturing sectors. It also safeguards micro, small and medium enterprises (MSMEs), farmers, and skilled professionals while strengthening India's position in European value chains. With effective implementation, bilateral trade is expected to rise well beyond the current USD 137 billion and spur investment, innovation, job creation, and long-term export growth," ICRA said. (ANI)

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