India-EU Free Trade Agreement Set for January 27 Announcement with Major Duty Reductions
India and the European Union are poised to announce a landmark free trade agreement on January 27, marking the culmination of 18 years of negotiations that began in 2007. According to sources familiar with the development, the pact will feature significant import duty cuts on key sectors including textiles, footwear, automobiles, and wines.
Key Sectoral Benefits and Concessions
Labour-Intensive Sectors: India has successfully secured zero-duty access for its labour-intensive industries such as textiles, leather, apparel, gems and jewellery, and handicrafts. This achievement aligns with India's consistent demand across all its free trade agreements, having previously accomplished similar access in deals with the UK, UAE, and Australia. Currently, EU tariffs on Indian goods average 3.8%, but labour-intensive sectors face approximately 10% import duty.
Automobiles and Alcoholic Beverages: The European Union has been advocating for reduced tariffs on its automobiles and wines. In response, India has offered quota-based tariff reductions for cars, similar to its approach in the UK trade agreement where automotive import duties were proposed to drop from over 100% to 10% under specific quotas. For wines, India has granted duty concessions over a 10-year period in previous agreements with Australia and New Zealand, and similar arrangements are expected in the EU deal. India currently imposes duties of 100-125% on alcoholic beverages.
Service Sector Liberalization and Safeguards
The agreement is also anticipated to liberalize regulations across various service sectors including telecommunications, transportation, accounting, and auditing. This regulatory easing aims to promote greater trade in services between the two economic blocs.
Protective Measures: Both parties have incorporated sufficient safeguards to protect their sensitive sectors. India has specifically shielded its agricultural and dairy sectors, which support the livelihoods of numerous small and marginal farmers. Similarly, the EU has maintained protection for its beef, sugar, and rice markets. In the automotive segment, import duty reductions will be implemented gradually over a 10-15 year period to allow for industry adjustment.
Trade Statistics and Economic Impact
The India-EU trade relationship is substantial, with bilateral trade in goods reaching $136.53 billion in 2024-25. This comprised $75.85 billion in Indian exports and $60.68 billion in imports, resulting in a trade surplus of $15.17 billion for India. The EU market accounts for approximately 17% of India's total exports, while India's exports to the bloc represent 9% of its overall overseas shipments. Services trade between the two entities amounted to $83.10 billion in 2024.
Current Tariff Landscape: India's weighted-average duty on EU goods stands at around 9.3%, with particularly high duties on automobiles (35.5%), auto parts (35.5%), plastics (10.4%), and chemicals and pharmaceuticals (9.9%). The FTA is expected to reduce or eliminate import tariffs on more than 90% of goods traded between the two parties.
Broader Agreement Framework
The India-EU FTA consists of 24 comprehensive chapters covering trade in both goods and services. In addition to the main trade agreement, both sides are negotiating separate agreements on investment protection and Geographical Indications (GI).
Former Commerce Secretary Rajesh Agarwal highlighted in September last year that the proposed trade agreement would create significant opportunities for India's domestic auto sector to boost exports and establish new collaborations with major European automobile companies.
This landmark agreement represents a strategic economic partnership that balances market access with sectoral protections, potentially reshaping trade dynamics between one of the world's largest economies and the world's largest trading bloc.
