Rajiv Memani: Why we can expect the India-EU trade agreement to yield win-win outcomes

The deal has rightly been characterized as the ‘mother of all deals.’ The EU is the world’s second-largest economic bloc, with a GDP of $19.5 trillion; it imports goods from outside the bloc worth $3 trillion, accounts for 12.3% of global trade and has a population of 450 million. Together, India and the EU form a market of about $24 trillion with nearly two billion people.

Indian businesses gain access to a market five times India’s GDP, while European businesses can tap the fastest-growing large economy in the world. In addition to trade, the deal will help boost investments, create an innovation ecosystem and facilitate mobility of professionals.

When combined with the European Free Trade Association (EFTA) and UK trade deals, Indian businesses will now have preferential access to all of Europe. With the addition of the latest agreement, the combined GDP of India’s trade-agreement partner countries would reach $36.3 trillion—over 33% of global GDP, a significant jump from the current 15%.

Once the deal comes into effect, 99% of India’s exports to the EU will face lower or nil tariffs, aiding $33 billion worth of outward shipments from day one. Today, the EU is India’s second-largest export destination, with exports of about $79 billion and imports of $57 billion.

Meanwhile, India’s share in EU imports is only 2.6%, as against China’s 22%. For instance, the EU imports apparel and textiles worth nearly $141 billion annually. Of this, India’s share is just over 3%, as against Bangladesh’s 16.3% and Turkey’s 8%. The elimination of a 12% customs duty provides significant potential for export growth.

Similar potential exists in other sectors such as leather and footwear ($40 billion of imports with an import duty of about 17%), gems and jewellery ($51 billion in imports and an import levy of about 4%), marine products ($29.5 billion, 26%), organic chemicals ($112 billion, 12.8%). India’s share in these EU imports is low.

Beyond tariff liberalization, the deal includes measures that would enable Indian export businesses to comply with non-tariff requirements through streamlined customs and regulatory cooperation, which are especially relevant for sanitary, phytosanitary and technical trade barriers. This has been an area of concern for Indian exporters.

Both sides have also worked towards making the deal mutually beneficial. India will eliminate or reduce tariffs on 96.6% of EU merchandise exports by value.

Tariffs on automobiles are proposed to be reduced over multiple years subject to quantitative quotas and value thresholds. Electric vehicles have been excluded, though. The quantitative limit—of 250,000 cars per annum—represents less than 6% of India’s market, reflecting the government’s pragmatic approach designed to protect the Indian auto industry while giving Indian consumers access to high technology automobiles.

Similarly, the duty on wines would be cut from 150% to 20-30%. With respect to the Carbon Border Adjustment Mechanism (CBAM), an area of concern, the EU will provide India ‘most favoured nation’ status and set up a mechanism to recognize its carbon credits.

India-EU services trade stands at $67 billion, comprising Indian exports of $38 billion and imports of $29 billion. The FTA secures expanded, commercially significant and predictable access across key EU sectors, including information technology (IT) and IT-enabled services, professional services, education, financial services and tourism, among others. This market access is supplemented by an agreement on mobility that covers short-term, temporary and business travel in both directions for intra-corporate transferees and business visitors.

While the EU has made no explicit investment commitment, investment flows into India are expected to rise. Indian manufacturing could become more competitive with access to low-cost inputs and technology from the EU. As mutual trust and familiarity grow, there will be opportunities for European businesses to service the Indian market and also increase their outsourcing to India as they diversify their supply chains. This would not just help promote ‘Make in India’ across the world, but also lead to quality improvements in Indian manufacturing.

Both India and the EU are keen on sovereignty in digital technologies like artificial intelligence (AI) and emerging areas like biotechnology and clean energy. India will associate with Europe’s research and innovation programme ‘Horizon Europe,’ which would benefit Indian students, scientists and researchers. India-EU startup hubs are also proposed, which should give innovation a fillip and help close technology gaps.

Lastly, the deal establishes a framework for bilateral and social security agreements with EU member states over five years, thus relieving Indian professionals of dual social security payments. It will be ratified by the European Parliament after legal vetting by both sides and the European Commission’s approval, and is expected to take effect in about a year.

By concluding the deal, both sides have signalled openness in trade in an era marked by protectionism and laid the groundwork for a strategic relationship that creates economic opportunities.

The author is chairman and CEO, EY India, and president, Confederation of Indian Industry.