Talks that began in 2007 and stalled in 2013 have seen renewed momentum since 2022, and Jefferies notes that broad agreement on avoiding sensitive items such as agriculture on both sides seems to be culminating in the FTA in the coming few days. The brokerage points out that India’s annual goods trade with the EU is about US$130 billion, similar in size to that with China or the US, with exports to the bloc at an annualised US$75 billion, accounting for 17% of India’s total exports and roughly 1.9% of GDP.
India currently runs a sizeable surplus with the EU, helped by a post Russia Ukraine war surge in petroleum product and electronics exports, with Jefferies estimating the goods trade surplus at US$10 to US$15 billion since 2022. Services trade is also significant at US$72 billion, where India enjoys a US$9 billion surplus.
Jefferies flags textiles as one of the biggest potential winners from tariff cuts. The EU imports about US$125 billion of textiles and apparel annually, of which India has just a 5 to 6% share, compared with China at 30% and a combined 20% share for Bangladesh and Pakistan. Crucially, Bangladesh and Pakistan already benefit from zero tariffs in the EU, versus duties of up to 10% faced by Indian exporters.
“The FTA bringing Indian textile duties on par with its South Asian neighbours will be a key positive,” Jefferies writes in a report, adding that this comes at a time when the US tariff imposition of 50% has significantly hurt the sector’s competitiveness in that market.
On autos, Jefferies underlines that a key European ask is better access to India’s passenger vehicle market, where import tariffs
currently go as high as 100% on fully built units. A gradual tariff reduction or quotas for tariff free imports is possible under the FTA, the note says, but it also stresses mitigating factors for domestic manufacturers. Most EU large auto makers already have CKD units or localisation, which bring effective import tariffs to around 30% for most models, while India’s highly competitive entry to mid segment market may limit market share loss for local OEMs.Autos and auto components currently account for about 4% of India’s goods imports from the EU, compared with 25% for electronic goods and 20% for machinery.
Electronics and machinery are highlighted both as key import lines and as areas where supply chain integration could deepen. Jefferies’ breakup of India’s imports from the EU shows electronic goods at 25%, machinery at 20%, and pharma and chemicals at 12%, with aircraft and parts at 8%.
In aviation, it notes that basic customs duty on aircraft and parts ranges between 2.5% and 10%, where an FTA could lower input costs, while the 5% IGST on most aviation imports is largely creditable against ticket GST, making customs duty cuts the more meaningful relief lever.
For pharma and chemicals, where India already enjoys zero or near zero EU tariffs, the focus shifts from duties to regulatory frictions. The EU currently imposes tariffs of 0% or near 0% on most pharmaceutical products exported from India, Jefferies observes, but points out that Indian companies must comply with additional regulatory requirements to access the market.
“Any easing of these requirements could be a positive catalyst for Indian pharma stocks,” it says, implying that the FTA’s real value for the sector may lie in streamlining approvals and mutual recognition of standards rather than headline tariff cuts.
The brokerage also lists a set of non tariff and services related issues that could shape the final contours of the agreement. A key concern for India is the EU’s non tariff barriers, including the upcoming Carbon Border Adjustment Mechanism, where Jefferies sees limited scope for relaxation.
On the positive side, India is expected to push for easier services exports and movement of professionals, seeking better visa and work access for its large young workforce in technology and medical fields, even as the EU may ask for greater opening of India’s financial, legal and other services sectors.
Jefferies draws a parallel with India’s recently concluded FTA with the UK, suggesting that similarly, the politically important agri and dairy sector is likely to be largely kept out of the EU pact. It cautions that some categories, such as wines and spirits and light engineering, may see higher competition from European imports once tariffs are reduced.
At the same time, the report argues that a successful India EU agreement could raise hopes of a potential India US trade agreement, extending the current FTA template to other major partners.
With India’s exports to the EU led by petroleum products at 17%, followed by pharma and chemicals at 15%, electronic goods at 11%, textiles including garments at 10% and machinery at 10%, Jefferies’ base case is that the FTA will lock in and potentially accelerate this export mix rather than dramatically alter it in the near term.
However, by cutting tariff disadvantages in textiles, potentially easing compliance in pharma, lowering aviation input costs and formalising a path for auto tariff reduction, the brokerage believes the deal is close to finalising and could mark a significant step in India’s integration with one of its largest trade partners.
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(Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own and do not represent the views of The Economic Times.)
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