EU trade deal gives PM Modi’s ‘Make in India’ ambitions a boost
The free trade agreement, which both sides have called the “mother of all agreements”, will open the EU market more widely to Indian exporters, especially in labour-intensive sectors such as clothing and furniture.
The bloc will eliminate or reduce tariffs on 99.5 percent of imports from India, including phasing out duties on garments and leather, sectors hit by US President Donald Trump’s 50 percent tariffs.
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Farida Group, one of India’s largest footwear manufacturers, expects sales in Europe to rise 10% to 20% once the deal comes into force, helping reduce its exposure to the US, previously its largest market.
“The agreement is a huge relief and will definitely help labour-intensive sectors,” said Israar Ahmed, Managing Director of Farida Shoes Pvt Ltd. “We gain a large consolidated market with both the UK and EU agreement and now aim to increase our exports to this region to 50% to 60%.”
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INDIA INSIGHT: Free Trade Agreements Increase the Attractiveness of Manufacturing
India’s gains from the trade deal could be significant in the medium term. Radhika Rao, senior economist at DBS Bank, said exports to the EU, which currently account for more than 17% of India’s total overseas shipments, could grow by 5% to 7% this decade. This would increase the bloc’s share of India’s exports to over 20%, potentially surpassing the US, which currently has a share of over 18%.
Textile stocks rose after the deal was announced on Tuesday, as investors priced in lower tariffs and stronger exports and defense companies gained expectations of deeper cooperation with European partners and better access to technology.
The EU deal could also stimulate the appetite of foreign businesses looking to diversify their operations outside China, which see India as a possible alternative location to set up factories for exports to Europe. This offers a glimmer of hope to Modi’s faltering manufacturing drive.
“With tariffs coming down to zero, there is interest among companies to manufacture in India,” said Ajay Sahai, director general of the Federation of Indian Export Organizations, an organization affiliated with the Ministry of Commerce. “They want to use India as one of their manufacturing bases to export to the rest of the world and even Europe.”
The Prime Minister’s ‘Make in India’ campaign aimed to increase manufacturing to 25 per cent of the economy, but the sector has shrunk from 16 per cent in 2015 to just 13 per cent by 2024, according to World Bank data. The recent flurry of deals, led by the EU agreement, could help India better integrate into global supply chains, industry leaders said.
Muralishankar Sambasivam, vice president of Super Auto Forge, which produces automotive parts, said that with the removal of non-tariff barriers and ease of paper work, production in sectors such as engineering products, auto parts, aerospace and defense will increase.
“India will now emerge not only as China plus one, but also as Europe plus one,” he said. “Both labor and energy costs are increasing in Europe, and companies want to move to reliable countries.”
The EU agreement is India’s fourth trade agreement signed since last year; That includes an ambitious deal with Britain as New Delhi tries to shed its protectionist reputation and blunt the impact of Trump’s tariffs. The move coincided with efforts by major exporters to move away from the American market.
US Trade Talks
Trump’s tariffs on India, the highest among major countries, restricted exports from that country, pushed the trade deficit to a record high and pushed its currency to an all-time low.
Although the possibility of a deal remains uncertain, both sides remain locked in trade talks to lower tariffs. Shortly after the EU deal was announced, the US trade representative said India had more work to do to address American concerns about purchases of Russian oil before securing a tariff cut.
“While we remain hopeful that India will secure a trade deal with the US in the coming months, we believe India will benefit by continuing to pursue its strategy of multiple alignment and strategic autonomy on trade,” said Kaushik Das, chief economist at Deustche Bank.
