On January 27th and after almost twenty years of negotiations, XNUMX-XNUMX business days e India have signed a free agreement exchange (FTA), with the aim of introducing a trade liberalization process of goods, services, and investments for approximately two billion people. In addition to reducing tariffs, the agreement aims to modernize regulatory cooperation, simplify customs procedures, and deepen strategic ties.
Secondo atradius, the agreement will eliminate or reduce significantly lower tariffs on more than 95% of product groups, creating one of the world's largest preferential trade zones and linking two economies that together account for nearly a quarter of global GDP.
A political compromise between markets and sensitive sectors
The agreement reflects a deliberate political calculationBoth sides excluded agriculture. Europe did so to avoid the kind of backlash that paralyzed the agreement. EU-Mercosur, while India has refused to open up a sector that still employs nearly half its workforce. The agreement is expected to be signed within six months, with entry into force likely about a year later. However, the text still needs to undergo legal review, translation, and ratification, meaning real changes won't begin until 2027.
Once operationalThe agreement will eliminate or reduce tariffs on 99,3% of EU exports to India and 96,6% of Indian exports to the EU in value terms. However, if the EU immediately eliminates tariffs on 90% of Indian products, including textiles and leather, New Delhi will eliminate tariffs on 30% of European products.elimination of customs duties For sensitive products, from processed foods to luxury cars, it will be phased out gradually over ten years. Quotas remain in place for key sectors, and both sides have protected their most sensitive industries.
For Europe, the most obvious advantage should be the reduction of Indian tariffs on industrial products, although the transition will take a decade. European manufacturers of machinery, electronics, pharmaceuticals, and aircraft are expected to be among the biggest beneficiaries, as India is expected to reduce tariffs from 11% to 44% on a wide range of product lines, capitalizing on the opportunities of a rapidly growing market.
The sectors that will benefit most from the agreement
For its part, theIndia she secured a preferential access for labor-intensive sectors, many of which will enter the EU duty-free from the outset. The free trade agreement opens 144 EU services subsectors to Indian companies: the elimination of customs duties follows competitors such as Bangladesh, Pakistan, and Vietnam, which already enjoy preferential access to the European market. India would thus gain immediate relief for goods hit by US tariffs, broader access for its IT and business services companies, and a more flexible visa regime for professionals and students.
Textiles and clothing, a driver of Indian exports, will see EU tariffs drop to zero, with reductions of up to 12%. This should boost shipments of yarn, ready-made garments, and home textiles. Tariffs on leather and footwear, currently 17%, will disappear completely once the agreement comes into force.
Should the following come true analysts' forecasts, I am for India the most significant gains, expected approximately five years after implementation. However, the implementation of the EU-India corridor will be closely linked to the payment methods for invoices. Recent trends show that while digital payments and automation are currently improving the speed of invoice settlement, payment discipline and manual processes continue to slow down cash flow and strain New Delhi's working capital.
