India’s EU Pact Won’t Work Without A Home-Grown Reset Of India Businesses
The trade agreement opens Europe’s doors to Indian exporters, but the real battle will be fought at home — in factories, supply chains and compliance systems that must adapt to some of the world’s toughest rules.
The Gist
The newly finalized trade deal between India and the EU represents a significant economic shift, creating a combined market worth $24 trillion.
- Elimination of duties on 70.4% of tariff lines enhances competitiveness for Indian exports.
- Key sectors like textiles and pharmaceuticals will greatly benefit from improved access to the EU market.
- Indian businesses must adapt to EU regulations and sustainability mandates to fully leverage the agreement.
After two decades of negotiations, the trade deal between India and the European Union (EU) marks a transformational shift not only for businesses but also for the global order. Termed as the "mother of all deals", it bridges the world’s fourth and second largest economies, creating a combined market of Rs 2,091 lakh crore ($24 trillion), catering to 2 billion people.
The deal strengthens the position of India in a rules-based trading environment, which can help hedge against global economic volatility and fractured global supply chains.
Leaders on both sides have described the deal as transformative, for its breadth and strategic implications.
The numbers are staggering. The agreement provides enhanced tariff liberalisation for key labour-intensive sectors, including textiles, leather, gems & jewellery, footwear, and related manufactured products. Once enforced, duties will be eliminated immediately on around 70.4% of tariff lines, covering about 90.7% of India’s export value into the EU, significantly improving competitiveness relative to current Most-Favoured-Nation tariffs in the EU market.
What Will Be The Next Steps?
These developments align with India’s broader economic strategy, for example its India@2047 framework, to deepen integration into global value chains, expand high-value exports, and foster international competitiveness for domestic producers — particularly in sectors that are major employers and contributors to export earnings.
After the political conclusion of the deal in January 2026, the agreement will undergo legal vetting (“legal scrub”) and translation into all official EU languages, after which formal signing and ratification processes will begin.
Like other EU trade agreements, it must be approved by the European Parliament, national parliaments of member states, as applicable, and India’s domestic legislative and executive processes. Only then can the FTA enter into force.
Although senior Indian officials have stated a strong intention for the agreement to enter into force within the 2026 calendar year, most independent analyses suggest operational commencement is more likely in early 2027 after the completion of legal and ratification steps.
The real long-term integration into the European supply chain will require more than just lower tariffs. It demands a strategic pivot by Indian businesses to master the EU’s rigorous regulatory standards, sustainability mandates, and digital trade rules.
How Will Indian Businesses Benefit?
1. Levelling the Playing Field for Labour-Intensive Sectors: Indian exporters in sectors like textiles, apparel, leather, and footwear will likely see immediate duty elimination on 100% of tariff lines. Previously, these sectors faced a "duty disadvantage" compared to competitors from least-developed countries; this agreement removes that barrier, providing direct access to the $263 billion EU textile market and $100 billion leather market.
2. Unlocking High-Value Gems & Jewellery Markets: The agreement provides 100% duty-free access to the EU's $79 billion premium gems and jewellery market. This is expected to significantly benefit major manufacturing hubs in Gujarat, Rajasthan, Maharashtra, and West Bengal, to name a few states.
3. Expanding "Pharmacy Of The World": While EU tariffs on medicines were already low, the FTA simplifies regulatory compliance and strengthens intellectual property (IP) frameworks. This positioning helps Indian pharmaceuticals become an essential, stable component of Europe's healthcare supply chain, especially as the EU seeks to diversify away from other regions.
4. Strategic Gains for Services and IT/IteS: The agreement secures deeper commitments across 144 services subsectors, including IT, professional services, and education. It introduces rules-based predictability and eases "Mode 1" (cross-border delivery) and "Mode 4" (mobility for professionals), helping Indian tech firms hedge against global trade uncertainties.
5. Competitive Advantage in Chemicals and Minerals: The FTA ensures zero duty on 97.5% of India's chemical exports and 100% of mineral tariff lines. This eliminates duties of up to 12.8% for chemicals, positioning India as a trusted supplier for the EU's nearly INR 43.57 Lakh Crore (USD 500 billion) chemical import market.
What Indian Exporters Must Prepare For
To benefit from the implementation — expected within the 2026/2027 calendar years — exporters must proactively address the following:
1. Navigate Regulatory Might: Compliance with EU Standards The EU's biggest barrier is often not tariffs, but its strict Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary (SPS) measures. Exporters must invest in quality control to meet the EU's non-negotiable health, food safety, and environmental standards, as rejected consignments in the EU are often destroyed rather than returned.
2. Master Rules Of Origin And Self-Certification: The FTA introduces self-certification through a statement on origin, which reduces compliance costs. However, exporters must ensure their products undergo "significant processing" within India to qualify, preventing third countries from using India as a transit hub to illegally benefit from the deal.
3. Prepare For Sustainability And Labour Mandates: The "Trade and Sustainable Development" chapter includes legally binding commitments on the Paris Climate Agreement, International Labour Organization (ILO) principles, and gender equality. Exporters should audit their supply chains for environmental impact and labour rights (e.g., child labour, workplace safety) to avoid being locked out of the market.
4. Adopt Advanced IP Protection Standards: The agreement brings Indian and EU Intellectual Property (IP) laws closer, covering trademarks, designs, and trade secrets. Indian businesses, particularly in tech and manufacturing, should proactively register and protect their IP to thrive in this more transparent and enforceable legal environment.
5. Leverage Digital Trade And E-commerce Rules: The deal includes modern rules on digital trade, protecting software source code from mandatory disclosure and ensuring online consumer protection. Indian service providers and MSMEs should digitalise their operations to take advantage of the simplified customs procedures and predictable rules for electronic commerce.
