DGFT & Policy
India-EU FTA: What changes for Indian exporters in 2026
The India-EU trade deal announced January 2026 will cut tariffs on textiles, leather, gems, and chemicals. Here's the timeline, product-wise duty reduction schedule, and what to do now.
By Aaryan Kakani · · 5 min read
What Does the India. EU FTA Deal Cover?
On 20 January 2026, India and the European Union jointly announced the conclusion of negotiations on a comprehensive Free Trade Agreement (FTA) after 16 years of on-and-off talks. The deal covers goods, services, investment protection, digital trade, government procurement, and sustainability provisions.
For Indian goods exporters, the headline number is this: the EU will eliminate customs duties on 99.5% of tariff lines covering Indian exports. India, in return, will liberalise 90% of its tariff lines for EU goods, with longer phase-out periods for sensitive products like dairy, wine, automobiles, and certain machinery.
Bilateral goods trade between India and the EU stood at approximately EUR 120 billion in 2025, making the EU India's second-largest trading partner after the US. The agreement is expected to boost Indian goods exports to the EU by 25-30% within five years of ratification, according to GTRI estimates.
Tariff elimination timeline
The tariff elimination schedule operates in four baskets. Understanding which basket your products fall into determines when you see the benefit.
| Basket | Timeline | Coverage | Key products |
|---|---|---|---|
| A | Day 1 (entry into force) | ~65% of lines | Most textiles, leather goods, gems, many chemicals |
| B | 3-year phase-out | ~20% of lines | Auto components, processed food, certain machinery |
| C | 5-year phase-out | ~10% of lines | Pharma APIs, specialty chemicals, seafood |
| D | 7-year phase-out | ~4.5% of lines | Sensitive agricultural products, certain iron & steel |
The remaining 0.5% of tariff lines are excluded from liberalisation entirely, covering products like certain rice varieties and a few strategic minerals where the EU maintains permanent duties.
Product-wise impact
Textiles & apparel
Currently the EU charges 12% on most Indian textile imports (MFN rate). Under Basket A, this drops to 0% on day one of ratification. Indian textiles will finally compete on equal footing with Bangladesh and Vietnam, both of which already enjoy zero-duty access via Everything But Arms (EBA) and the EU-Vietnam FTA respectively. This is the single biggest win for Indian exporters in the deal.
Leather & footwear
EU MFN duties on leather goods average 8%, with finished footwear attracting up to 17%. Basket A coverage means immediate elimination for most leather products. Finished footwear falls under Basket B with a 3-year phase-out. Agra, Kanpur, and Chennai leather clusters stand to gain significantly.
Gems & jewellery
Cut and polished diamonds already enter the EU at 0%, so the FTA impact here is marginal. However, gold jewellery (currently 2.5%) and silver jewellery (currently 4%) move to zero under Basket A. The bigger benefit is the simplified customs procedures that come with FTA implementation.
Chemicals & pharma
EU MFN duties on chemicals range from 4-6.5%. Finished pharma formulations face 0% duty already, but Active Pharmaceutical Ingredients (APIs) attract 3-6.5%. APIs are placed in Basket C, meaning a 5-year phase-out. Specialty chemicals (dyes, pigments, intermediates) are split between Basket A and B depending on the specific HS code.
Auto components
The EU applies 3-4.5% duty on most auto parts. Under Basket B, these phase out over 3 years. For an industry with razor-thin margins and fierce competition from Turkey and Eastern Europe, even a 3-4% cost advantage matters. Pune, Chennai, and Gurugram manufacturers should factor this into their 2027-28 pricing.
Seafood
EU duties on shrimp and prawns run at 12-20% depending on preparation. Frozen shrimp (India's biggest seafood export) sits in Basket C with a 5-year phase-out. This was a hard-fought concession, as the EU initially resisted liberalising seafood. Indian exporters will need to meet stringent EU sanitary and phytosanitary (SPS) standards, including full traceability back to the aquaculture farm.
GSP suspension: the gap risk
Under the EU's Generalised Scheme of Preferences (GSP), India enjoyed reduced duties on thousands of tariff lines. Textiles entered at 9.6% instead of 12%. Leather goods at 5-6% instead of 8%. The EU's rationale for suspending GSP is that the FTA will provide even better market access. But the FTA is not ratified yet.
This creates a gap period, likely April 2026 through Q1 2027, where Indian exporters pay higher duties than they did before the FTA was announced . The cost impact is real: on a EUR 100,000 textile shipment, the difference between GSP rate (9.6%) and MFN rate (12%) is EUR 2,400.
Sectors most affected by the gap: textiles and apparel (2.4 percentage points higher), leather goods (2-3 pp higher), processed food (1-4 pp higher), and certain plastics articles (1-2 pp higher). If you were exporting under GSP, review your pricing immediately and discuss cost-sharing with your EU buyers.
What Indian exporters should do now
Don't wait for ratification. The preparation window is now.
- Understand Rules of Origin (ROO). The FTA will require that goods meet specific origin criteria to qualify for preferential tariffs. This typically means a minimum value-addition of 35-40% in India, or a change in tariff classification. If you use imported inputs, map your supply chain now to confirm compliance. See our Certificate of Origin guide.
- Apply for preferential Certificate of Origin (COO). Once the FTA is ratified, you will need a preferential COO for every shipment. Get familiar with the process, identify your issuing authority, and set up internal documentation systems.
- Review pricing with EU buyers. Factor in the GSP gap (higher duties now) and the post-FTA benefit (zero duties later). Use this as a negotiation lever to lock in longer-term contracts. Our export pricing guide covers landed cost calculations in detail.
- Prepare for CBAM compliance. The EU's Carbon Border Adjustment Mechanism (CBAM) applies to iron, steel, aluminium, cement, fertilisers, electricity, and hydrogen imported into the EU. If you export any of these, you need to report embedded carbon emissions starting from the transitional period.
- Get ahead of EUDR and PPWR. The EU Deforestation Regulation (EUDR) requires traceability for commodities linked to deforestation (leather, coffee, cocoa, soy, wood, rubber, palm oil). The Packaging and Packaging Waste Regulation (PPWR) mandates minimum recycled content and recyclability standards. Both take full effect in 2027.
- Review your [Incoterms](/resources/incoterms). With duty structures changing, the economics of DDP vs DAP vs CIF shift. If you were quoting DDP to EU buyers, recalculate with the new duty landscape.
- Check [duty drawback](/resources/duty-drawback) and [FEMA compliance](/resources/fema-compliance) implications. If the FTA reduces your EU customer's import duty, the competitive dynamics change. Ensure your Indian-side incentives (drawback, RoDTEP) are optimised to maintain margin.
How this compares to the India-UK FTA
The India-UK CETA, which entered into force during 2026, provides a useful benchmark. And shows what entry into force actually changes. Key differences:
| Parameter | India-UK FTA | India-EU FTA |
|---|---|---|
| Coverage (EU/UK side) | 97% of tariff lines | 99.5% of tariff lines |
| Full phase-out period | 10 years | 7 years |
| Textile duty elimination | Year 1 (most items) | Day 1 (Basket A) |
| Scotch/whisky concession | India reduced duty to 75% over 10 years | EU wines/spirits get 8-year phase-out |
| Services coverage | Mode 4 (temporary movement) included | Mode 4 limited, stronger Mode 1 (digital) |
| Market size | ~67 million consumers | ~450 million consumers |
The India-EU FTA is broader in scope and covers a much larger market, but the India-UK FTA had more generous services provisions, particularly for IT professionals. For goods exporters, the EU deal is unambiguously bigger in impact due to the sheer market size and more aggressive tariff elimination schedule.
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