As it happens, India-EU FTA will take time to show results

Beyond trade, it is critical that India engages with the EU for promoting bilateral investment, joint research, and technology exchange

Described as the ‘mother of all deals’, the India–European Union (EU) Free Trade Agreement (FTA), concluded recently, holds immense potential in terms of scale. Admittedly, the EU constituents are high-income countries with purchasing power. 

Bilateral merchandise trade between India and the EU stood at about US $135 billion in fiscal 2024-25, with India’s exports valued at $75 billion. India has been enjoying a goods trade surplus of $14-16 billion in recent years. The FTA is expected to provide a further boost to the bilateral trade relationship. 

From India, key labour-intensive goods exported to the EU include textiles, readymade garments, gems and jewellery, leather goods, handicrafts, and some agricultural commodities, including marine products. Tariff elimination is sure to improve India’s price competitiveness vis-à-vis other countries (Bangladesh, Vietnam, Turkey, etc.) that export similar goods to the EU. 

That makes not price but quality and sustainable production practices the key to unlock the EU premium market. On the face of it, the trade deal is positive for many Indian goods. 

The fine print is critical, though. The EU’s non-tariff barriers in terms of food safety standards, pesticide residues, sustainable production practices, and so on, may not allow a smooth passage for Indian goods. For India, a business-as-usual attitude will not work. The EU’s new vision statement unveiled last year prioritises food and nutrition security, emission reduction, stringent food safety standards, and sustainable production processes. 

Food safety standards like maximum residue limits for hazardous pesticides, mycotoxin contamination, etc., are far stricter in the EU than in most countries. These strict standards would be enforced for imported products too. It is a challenge Indian exporters will have to surmount with commitment and patience.  

At the same time, these challenges provide opportunities. Developed economies with high disposable incomes are seen moving towards consumption of natural, organic, biodegradable, environment-friendly, and sustainably produced products. 

On its part, the EU is keen to encourage certified organic product imports. With varied agro-climatic zones and more than one harvest season, India is well placed to service the European market with a range of organic products, including spices, pulses, millets, horticulture, cotton, and more. 

Tapping the potential calls for a strategic action plan with a long-term perspective on India’s part. For instance, some districts endowed with appropriate agro-climatic conditions may be declared ‘organic’ to produce products exclusively for the export market. To help growers in such districts, the domain expertise and services of agricultural universities and Krishi Vigyan Kendras would be valuable. Importantly, India is not exempt from the EU Carbon Border Adjustment Mechanism that seeks to discourage the import of goods with a high carbon footprint. These goods include aluminium, steel, cement, and so on. 

It would be premature to assume that the FTA would immediately boost India’s exports to the EU. It is going to take well over a year for all the EU constituent countries to ratify the deal. 

The EU target is to double exports to India from $60 billion to $120 billion in five years. It is understandable that the EU wants to tap the growing Indian market. Their main exports would include cars, wines and spirits, cheese, and so on. 

It is necessary we set a commodity-wise export target for the EU, design a strategic action plan and implement it with focused attention. Promoting exports of our traditional labour-intensive goods is critical for the economy. 

While trade is important, it is a transactional relationship. Beyond trade, it is critical that India engages with the EU for promoting bilateral investment, joint research, and technology exchange. In particular, FDI inflows from the EU would be a morale booster.