India-EU Free Trade Agreement to Drive Major Export Growth Across Key Sectors
India's recently finalized Free Trade Agreement (FTA) with the European Union is poised to deliver substantial economic benefits, particularly boosting exports in textiles, pharmaceuticals, chemicals, and agriculture. According to a detailed sectoral analysis by the credit rating agency ICRA, the EU continues to stand as one of India's largest and most vital trading partners, making this agreement a strategic milestone.
Comprehensive Tariff Elimination and Market Access
The India-EU FTA, concluded in January 2026 after extensive negotiations, eliminates tariffs on over 90 percent of goods traded between the two economic blocs. ICRA's report highlights that the agreement grants India preferential zero-duty access on 97 percent of EU tariff lines, covering nearly 99.5 percent of the value of Indian exports. In return, India will reduce or eliminate tariffs on 92 percent of its tariff lines for imports from the EU.
Textile and Apparel Sector as a Primary Beneficiary
The textile and apparel industry is expected to emerge as one of the biggest winners under this new trade framework. Duty-free access to the EU market will level the playing field for Indian exporters, placing them on par with competitors such as Bangladesh, Vietnam, and Turkey, which previously enjoyed tariff advantages. Apparel and home textiles, in particular, are anticipated to experience enhanced export competitiveness and attract higher long-term investment.
Pharmaceuticals and Healthcare Products Gain Competitive Edge
Pharmaceuticals and healthcare products are also set to reap significant benefits. The EU currently accounts for approximately 12 percent of India's pharmaceutical exports and 46 percent of its pharma imports. The removal of EU import tariffs on Indian medicines is projected to boost export competitiveness, while lower EU tariffs on imports of medicines, bulk drugs, and medical devices will help reduce domestic input and healthcare costs.
Chemical and Engineering Goods See Improved Prospects
The EU serves as a key destination for India's organic chemical exports, representing about a quarter of total shipments. With the FTA's implementation, Indian chemical companies are expected to improve their competitiveness against global suppliers, including those from China. 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 to Expand
Agricultural and processed food exports, including tea, coffee, spices, fruits, vegetables, and marine products, will gain preferential access to the EU market. Marine exports, in particular, are expected to benefit from tariff reductions of up to 26 percent, supporting coastal employment and fostering export growth.
Labour-Intensive Sectors and Safeguards for Sensitive Areas
Labour-intensive sectors such as leather, footwear, furniture, and rubber products are also anticipated to see gains. Concurrently, sensitive sectors, including dairy, cereals, and poultry, have been safeguarded to protect farmers and micro, small, and medium enterprises (MSMEs).
Historical Trade Growth and Future Projections
Merchandise trade between India and the EU grew at a compound annual growth rate of 7 percent between 2015-16 and 2024-25, with India maintaining a trade surplus since 2020-21. ICRA emphasized that the FTA enhances India's competitiveness across labour-intensive, agricultural, engineering, services, and advanced manufacturing sectors. It also safeguards 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, spurring investment, innovation, job creation, and long-term export growth. This agreement marks a pivotal step in deepening economic ties between India and the European Union, promising a brighter future for multiple Indian industries.
