India-EU Free Trade Agreement and Its Implications
The India-European Union (EU) free-trade agreement (FTA) represents a considerable opportunity for India's labour-intensive sectors.
Key Beneficiaries
- Industries like textiles, clothing, footwear, leather, marine products, and plantation goods stand to gain significantly.
- These sectors face high tariffs in the EU, making the FTA particularly beneficial.
Economic Impact
- In FY25, India’s exports to the EU were around $76 billion, comparable to $87 billion to the US.
- The EU is the second largest export market for Indian textiles and apparel, valued at $7.2 billion.
- Market access to the EU will likely boost exports and job creation, especially in the textile and apparel sector, which employs about 45 million people.
Tariff Reduction and Competitive Advantage
- Previously, the EU imposed tariffs up to 12% on textiles, 17% on leather and footwear, and 26% on marine products, but these will now be eliminated.
- The reduction in tariffs addresses India's competitive disadvantage against Asian rivals with preferential access to the EU.
Challenges and Requirements
- Non-tariff barriers such as stringent product standards, traceability, and sustainability norms may pose challenges.
- Compliance will require investments in technology, certification, and process upgrades.
- There is a critical need for domestic reforms, including infrastructure for product compliance and logistics improvements.
Strategic Recommendations
- Invest in infrastructure like testing labs and quality control systems.
- Improve logistics through better port management, faster customs procedures, and enhanced connectivity.
- Align skilling and training programs with global standards to ensure sustainable scaling of labour-intensive sectors.
The FTA provides a platform for growth but requires strategic domestic enhancements to fully realize its potential benefits for employment-intensive growth.
