After nearly two decades of intermittent negotiations, India
and the European Union have finally signed the much-awaited Free Trade
Agreement (FTA) – hailed by both sides as the “Mother of All Deeds” – on
January 27. This deal is more than a trade agreement: It heralds that India has
come of age, for it has shown the courage to enter into a trade agreement with
27 countries that are far ahead of India technologically and economically.
This agreement also showcases India’s confidence, maturity
and negotiating skills in dealing with a powerful counterparty. Piyush Goyal,
Commerce minister, nicely reflects this while describing the scale and intent
of the agreement, thus: “This mother is neither going to be very strict nor
lenient. This mother is going to be compassionate … going to be loving, …going
to make sure that … the 27 nations of Europe and India, all 28 … will enjoy the
fruits of this free trade agreement.”
This deal is pretty ambitious. The EU is India’s third-largest
trading partner. During 2024-25, India exported goods worth $75.85 billion to the
EU and imported goods worth $60.68 bn. Under the deal, the EU will drop tariffs
on 99.5 % of goods imported in terms of value from India. Similarly, India has
agreed to liberalise duties on over 92 per cent of tariff lines. India has
agreed to bring down tariffs to zero on 30% of trade by value as soon as the
agreement comes into force. Thus, Europe will get access to a vast Indian market
of 1.4 bn consumers. Similarly, Indian manufacturers in the textiles, leather,
engineering goods, and gems and jewellery sectors can now compete on an equal
footing with countries like Turkiye, Vietnam, etc.
Credit goes to both parties for accommodating each other’s
sensitive issues that seemed intractable previously. India could manage to
ensure that its strategic agricultural sectors and dairy were excluded from the
deal. Similarly, the EU managed to exclude several of its sensitive
agricultural sectors from the deal. That aside, the workable solution to tackle
automobile exports to India stands out. The quota-based system, limited to
higher-end vehicles, designed to protect the interests of India’s domestic
manufacturers at the lower-end of the price band, will offer a big opportunity
for European luxury carmakers to export to India. Similarly, quota-based wine
tariffs open the Indian market for French wine-makers while offering a
semblance of protection to domestic producers.
This FTA is not just about tariffs. It also aims at
rebalancing geopolitical interests. India, by deepening its ties with Europe,
can hedge against the US trade unpredictability. In a similar vein, for the EU,
the deal is a hedge against authoritarian supply chains. Indeed, several other
agreements covering mobility, technology and defence and security were also
signed to increase cooperation and strengthen relations between India and the
EU. This newfound understanding shall lay the foundation for a broader India-EU
strategic realignment.
Of course, in any such agreements, there is bound to be dissatisfaction
among some quarters. The Samyukta Kisan Morcha (SKM) – an umbrella body of
farmers’ organisations – fears that opening the processed food market to the EU
will have a disastrous impact on domestic agriculture production and small
farmers. But what one must bear in mind here is that while negotiating, one
cannot expect all the benefits to be one-sided—there has to be a give-and-take
approach. It is only when negotiations result in a win-win outcome that execution
of a deal becomes smooth. Now that we understand our FTA-related challenges, we
need to strengthen our competitiveness with targeted policy support to overcome
the challenges.
That said, there are some real concerns: India could not
obtain any concessions under the Carbon Border Adjustment Mechanism (CABM).
Though as of date tariffs apply to only six carbon-intensive products, the deal
is designed to include all industrial goods in the coming years. This is a big
challenge. The only saving grace is that this tariff is applicable to all
countries equally. India has, of course, succeeded in making the EU agree that
any concession granted to any other country will be extended to India as well. Nonetheless,
this is an opportunity for Indian firms to modernise quickly and enhance their
credibility across global markets.
Similarly, the calibrated automobile liberalisation is likely
to challenge India’s market dynamics. Unless policy measures to strengthen the
domestic component ecosystem, MSME suppliers and R&D capabilities are implemented
soon, we risk becoming a high-value import market. Similarly, despite tariff
liberalisation, agri-exports will face a formidable challenge due to the EU’s stringent
sanitary and phytosanitary standards, residue limits, carbon footprint
compliance, and sustainability certifications. Secondly, the EU’s agricultural
sector is highly subsidised and unless our farmers produce at scale and
competitive costs, exports may not gain momentum.
This FTA is a great opportunity. It offers India
unprecedented access to European markets— one of the world’s most demanding
regulatory blocs. To capitalise on the deal, domestic manufacturers,
particularly MSMEs, which are the backbone of employment, need policy and
financial support to upgrade their skills and technology. Thus, success rests
on the execution of the deal. That is the big challenge!
