What happens when two of the world’s largest economies decide to tear down almost all trade barriers between them? The EU–India Free Trade Agreement is doing exactly that, linking markets that together account for nearly 25% of global GDP. In 2024 alone, bilateral trade in goods exceeded €120 billion, positioning the EU as India’s second-largest trading partner and signaling a major shift in global industrial dynamics.
The agreement targets tariff liberalization across 96–99% of tariff lines by trade value, covering goods, services, investment protection, and regulatory cooperation. For Indian textile suppliers in Surat, this means expanding production for European buyers with lower costs and faster delivery.
For European retailers in Milan or Paris, it translates into streamlined sourcing, reduced expenses, and more predictable supply chains. Across sectors, the FTA fundamentally reshapes cost structures, sourcing strategies, and long-term contract economics.
Unlike previous trade frameworks, the EU–India FTA embeds legally binding commitments across industrial goods, professional services, public procurement, and sustainability-linked compliance. These provisions directly affect manufacturing margins, export pricing, capital allocation, and vendor selection decisions. For industries like pharmaceuticals, electronics, textiles, and machinery, this agreement is far more than a tariff cut; it is a structural reshaping of how trade and investment flow between two of the world’s largest economies.
Pharma Profits Soar with EU Access
India’s pharmaceutical exports reached USD 30.47 billion in FY 2024–25, reflecting a 9.4% year-on-year increase as global demand remained strong (Source: www.ibef.org). Europe accounts for approximately 19% of these exports, translating to roughly USD 5.8 billion in annual shipments to the EU prior to the FTA.
The EU‑India FTA will reduce tariffs on pharmaceutical goods, previously up to 11%, toward near-zero levels, significantly enhancing the landed-cost competitiveness of Indian manufacturers supplying European markets. This change allows companies to reallocate capital toward regulatory filings, bioequivalence studies, and EU GMP capacity expansion, improving both production scale and market reach.
The partnership reinforces cooperation on technical barriers to trade, conformity assessment procedures, and transparency of standards, including mechanisms for public consultation and predictable timelines for technical regulations. These provisions are designed to reduce administrative friction and support smoother market entry for compliant exporters.
How FTA Reshapes India–EU Apparel Flow
The European Union is one of the world’s largest apparel import markets, with the EU’s textiles and apparel imports valued at around €176.9 billion in 2023, showcasing the sheer scale and importance of this consumer market. (Source: www.cbi.eu)
Until now, Indian textile and apparel exports to the EU faced import duties of up to about 12%, putting Indian suppliers at a disadvantage relative to competitors such as Bangladesh, Pakistan, and Turkey that had preferential or zero‑duty access.
Under the EU–India Free Trade Agreement, tariffs on Indian textiles and apparel are set to be eliminated or reduced, opening up zero‑duty access to the EU’s approximately USD 263.5 billion textiles and apparel market. India’s exports to the EU in this segment were roughly $7–$7.2 billion recently, indicating significant upside potential as tariff barriers are removed.
Lower tariff exposure will strengthen India’s position in long‑term supplier contracts, particularly for cotton garments, home textiles, and value‑added apparel, where price sensitivity directly influences sourcing decisions among European retailers and private‑label brands.
Electronics Trade Gets a Shock of Opportunity
India’s electronics exports to the European Union stood at around USD 11.3 billion in FY2024–25, with smartphones alone accounting for about USD 4.3 billion of that total. Electronics are one of India’s key export categories into the EU, reflecting growing assembly and manufacturing scale under global value chains.
Under the EU–India Free Trade Agreement, tariffs on electronics exports are set to fall from about 14 % to zero on roughly 99.6 % of export lines, including finished products, components, and sub‑assemblies. This near‑zero duty scenario significantly enhances cost competitiveness for Indian electronics manufacturing services (EMS) and OEM exporters targeting European supply chains.
The agreement’s tariff elimination applies across categories such as TVs, lighting equipment, and industrial electronics, where duties previously increased landed costs for Indian suppliers. With preferential access into the EU’s ~USD 750 billion electronics market, Indian firms can pursue scale, pricing advantages, and longer‑term contracts with European buyers.
Importantly for B2B supply chains, lower tariffs and streamlined market access reduce uncertainties in cost forecasting and procurement planning for European firms sourcing from India. This supports greater integration into EU‑led value chains, especially in segments like contract manufacturing, sub‑assembly exports, and industrial electronic components.
Beyond tariff cuts, the FTA is expected to improve regulatory alignment and technical standard recognition, which shortens approval timelines for Indian products entering EU markets. Combined with cheaper access to advanced European machinery and semiconductor inputs, this strengthens input cost structures and investment decisions for Indian electronics exporters.
Overall, electronics industry players on both sides, from Indian EMS firms to European OEMs, benefit from a predictable, cost‑efficient, and scalable trade environment.
Machinery and Capital Goods Trade Gets a Lift
Machinery and electrical equipment have been among India’s largest imports from the EU, with India’s goods imports from the EU reaching USD 60.68 billion in 2024–25. Within this, machinery and computers alone accounted for about USD 13 billion, underscoring India’s reliance on capital goods and technology‑intensive inputs for manufacturing, infrastructure, and industrial sectors.
Under the EU–India Free Trade Agreement, tariffs on machinery and electrical equipment, previously as high as 44 %, will be eliminated on almost all products, covering roughly €16.3 billion worth of machinery exports from the EU. This phased duty elimination (over 5–10 years) significantly lowers landed costs for Indian buyers of high‑end capital goods.
For Indian manufacturers across automotive, textiles, chemicals, and advanced manufacturing clusters, lower import duties compress input costs and improve project economics for capacity expansion and modernization projects. Cheaper access to precision tools, factory automation systems, and specialized machinery improves competitiveness and planning certainty.
The tariff cuts also create incentives for longer‑term investment decisions and technology adoption. With reduced import barriers, Indian firms can better forecast capital expenditure and pursue upgrades to production lines, while European exporters gain more predictable access to one of Asia’s fastest‑growing industrial markets.
Overall, tariff liberalization under the FTA for capital goods is expected to strengthen industrial linkages, reduce dependence on non‑preferential suppliers, and support deeper integration of Europe‑made machinery into India’s value chains, boosting productivity and export readiness across sectors.
Access Granted: India’s Service Surge
India–EU services trade has grown significantly over recent years, with bilateral trade in services reaching about USD 83.10 billion in 2024. Of this, India’s services exports account for a substantial share, reflecting strong demand for IT, business, and professional services in European markets.
Within overall services exports, IT and IT‑enabled services have historically been a dominant segment, supported by transport, other business services, and telecommunications, making the EU one of India’s most important destinations for digital and knowledge‑intensive exports. Trade in services between the EU and India has more than doubled since 2020, rising from about €30.4 billion to nearly €59.7 billion by 2023.
The EU–India Free Trade Agreement includes commitments on services market access across 144 subsectors, covering IT/ITeS, professional and financial services, education, tourism, construction, and other business services. This expanded scope enhances predictability and non‑discriminatory treatment for Indian service providers in the EU.
A key FTA provision is a mobility framework that facilitates short‑term and temporary movement of professionals, enabling easier deployment of skilled personnel for project‑based and contractual service delivery across both regions. This has the potential to expand long‑term enterprise contracts that depend on cross‑border talent flows.
In return, the EU gains improved access to specific service subsectors in India, opening opportunities for European firms in financial and high‑end services. The combination of tariff‑free market entry for goods and more stable services rules under the FTA is expected to boost integrated supply chains where services play a critical role in delivery, after‑sales support, and digital transformation.
Overall, the agreement’s services commitments help reduce regulatory uncertainty and strengthen India’s positioning as a key delivery hub for digital, engineering, and professional services, while providing European enterprises with more predictable engagement terms across a broad set of service offerings.
What Changes at the Contract Level
The European Union accounts for a significant share of India’s public procurement and regulated contract markets, with EU–India trade in goods and services totaling USD 219.6 billion in 2024–25 (goods ~USD 136.5 billion and services ~USD 83.1 billion). This scale underscores the potential impact of expanded procurement access under the EU–India Free Trade Agreement.
While detailed FTA text on procurement is still being finalized, the chapter on government procurement aims to provide greater transparency and expanded access for European firms in sectors where India purchases machinery, professional services, and technology solutions. Broader access to India’s procurement markets, which involve state and central contracts, could unlock a sizable share of India’s procurement spending once the agreement is implemented.
The deal’s mutual recognition and regulatory cooperation provisions, including streamlined customs procedures, greater transparency in technical standards, and simplified compliance requirements, are expected to reduce regulatory friction and lower procedural costs for exporters and importers, improving contract execution timelines and business certainty on both sides.
Reduced regulatory uncertainty and more predictable procurement frameworks will benefit both Indian suppliers complying with international standards and European firms seeking consistent contract performance metrics. This creates a more competitive environment for cross‑border bidders, potentially increasing contract volumes across manufacturing inputs, professional services, and technology solutions.
Capital Connect: How the FTA Fuels EU Investment in India
The European Union is one of the largest sources of foreign direct investment (FDI) into India, with cumulative inflows of approximately USD 119.16 billion between April 2000 and December 2024, representing about 16.55 % of India’s total FDI equity inflows (Source: www.dpiit.gov.in). There are nearly 6,000 EU‑based companies operating in India across sectors like technology, automobiles, chemicals, renewable energy, and professional services.
According to EU official data, the EU’s share of foreign investment stock in India reached about €140.1 billion in 2023, up from around €82.3 billion in 2019, making the bloc a leading long‑term investor in Indian industry and infrastructure projects.
The Free Trade Agreement includes investment protection provisions and more robust dispute‑resolution mechanisms, which are expected to boost investor confidence and encourage larger, longer‑horizon capital commitments. These protections can reduce perceived risk for European investors entering capital‑intensive sectors such as advanced manufacturing, digital infrastructure, and clean energy.
Manufacturing‑led industries already attract a large share of EU investment projects in India, with European firms leveraging tariff reductions and improved market access to scale production for both domestic consumption and exports. Under the FTA, clearer investment rules and stronger investor safeguards are likely to enhance capital flows into export‑oriented clusters, reinforcing India’s role in global value chains.
Structural Shifts in Trade and Investment
The EU–India Free Trade Agreement establishes a new baseline for cost competitiveness, supply chain integration, and contract certainty across pharmaceuticals, textiles, electronics, machinery, and services. Indian exporters gain materially from tariff elimination, improved regulatory predictability, and expanded procurement access.
European firms benefit from a predictable investment environment, streamlined import costs, and enhanced market reach in India’s rapidly modernizing economy. Enterprises that recalibrate sourcing, contract frameworks, and capital deployment to align with the FTA are positioned to capture structural gains rather than cyclical benefits.
Across all five industries, the agreement signals a long-term, data-driven reconfiguration of trade flows, contract structures, and cross-border investment strategies, reinforcing integrated commercial relationships between India and the EU.
