India-EU Free Trade Agreement Hailed as Credit Positive by Moody's Ratings
The recently concluded India–European Union Free Trade Agreement (FTA) represents a significant milestone in international trade relations, with Moody's Ratings declaring it credit positive for India. This landmark agreement, described as the "mother of all deals," promises to reshape economic dynamics between two of the world's largest economic entities.
Economic Impact and Market Access
According to Moody's analysis released on Wednesday, the FTA will play a crucial role in attracting foreign investment and strengthening India's manufacturing sector. The rating agency emphasized that the agreement will particularly enhance export competitiveness in labour-intensive industries, providing Indian businesses with unprecedented access to European markets.
The pact creates a combined market of approximately two billion people, bridging the world's fourth-largest economy (India) with the second-largest economic bloc (the European Union). This monumental agreement concludes negotiations that spanned nearly two decades, reflecting India's strategic efforts to diversify its trade relationships selectively.
Tariff Reductions and Sectoral Benefits
Under the comprehensive agreement, about 93% of Indian shipments will enjoy duty-free access to the 27-nation European bloc. Meanwhile, European imports including luxury cars and premium wines are expected to become more affordable in the Indian market.
Moody's specifically noted that lower tariffs and improved market access will support India's ambitious plans to develop its manufacturing capabilities. The agency highlighted that while EU imports currently represent a smaller portion of India's overall import bill, reduced tariffs could help ease input costs for various industries.
Automotive Sector Implications
The automotive industry stands to experience significant changes under the new agreement. European car manufacturers will gain easier access to the world's third-largest car market, allowing them to introduce more premium models through a calibrated liberalization framework. This presents both opportunities for EU brands and increased competition for domestic Indian manufacturers.
India has agreed to gradually reduce import duties on European vehicles from 110% to 10% for up to 250,000 vehicles annually—a quota more than six times larger than what was offered under the India-UK trade agreement.
Detailed Tariff Changes
The EU's average tariffs on Indian goods, currently at approximately 3.8%, will be reduced to about 0.1% under the new agreement. However, several sectors currently face substantially higher duties that will be eliminated:
- Marine products (0–26%)
- Chemicals (up to 12.8%)
- Plastics and rubber (up to 6.5%)
- Leather and footwear (up to 17%)
- Textiles and apparel (up to 12%)
- Gems and jewellery (up to 4%)
- Railway components, aircraft parts, ships and boats (up to 7.7%)
- Furniture and light consumer goods (up to 10.5%)
- Toys and sports goods (up to 4.7%)
Once implemented, nearly all Indian goods—over 93%—will receive zero-duty access to EU markets, with automobiles and steel being the primary exceptions. For the remaining products, Indian exporters will benefit from tariff reductions and quota-based duty concessions.
Reciprocal Benefits for European Exports
The agreement also provides substantial benefits for European exporters. The EU will receive duty-free access for over 90% of its goods in India over a ten-year implementation period. India will immediately remove duties on approximately 30% of European products when the agreement takes effect.
Key European products receiving duty concessions include:
- Automobiles
- Wines, spirits, and beer
- Olive oil
- Kiwis, pears, and fruit juices
- Processed foods (breads, pastries, biscuits, pasta, chocolates)
- Pet food
- Sheep meat, sausages, and other meat preparations
These products currently face import duties ranging from 33% to 150% in the Indian market, making the tariff reductions particularly significant for European exporters.
Implementation and Future Considerations
The free trade agreement is expected to be formally signed and implemented this year, though Moody's cautioned that the broader benefits will depend on progress in complementary areas. The rating agency specifically mentioned the importance of improving business friendliness and streamlining regulations to maximize the agreement's positive impact.
This strategic partnership between India and the European Union represents more than just a trade agreement—it symbolizes a deepening economic relationship that could reshape global trade patterns and strengthen both economies in an increasingly interconnected world.
