India-EU Free Trade Agreement: How Tariff Cuts Could Help Labour-Intensive Exports and Jobs
The Union Finance Minister said the India-European Union (EU) Free Trade Agreement (FTA) will help India export more and create more jobs in labour-intensive sectors (sectors that need many workers to make goods).
Under the deal, India has opened 92.5% of its tariff lines (the individual product categories in its customs list) and about 97% of the value of goods it imports from the EU.
The EU, in turn, has opened about 99% of trade value and roughly 97% of tariff lines for Indian goods, as stated by the Finance Minister.
Sectors expected to gain include footwear, textiles, toys and processed products. Many of these are run by micro and small enterprises (MSEs).
Around US$33 billion of India's current labour-intensive exports (apparel, leather and footwear, marine products, toys, sports goods, gems and jewellery) are set to get zero-duty access into the EU once the deal takes effect. Sensitive areas such as agriculture stay protected.
The deal was concluded on 27 January 2026 at the 16th India-EU Summit in New Delhi. It is not yet in force: it still needs signing and approval on both sides, and entry into force is expected in 2027.
Free Trade Agreements: Concept and WTO Framework
A Free Trade Agreement (FTA) is a deal between two or more countries to remove or sharply cut import taxes (tariffs) on most of the goods they trade with each other. Each country still keeps its own tariffs for countries outside the deal. Modern FTAs also cover services, investment, government purchases and common standards. Under World Trade Organization (WTO) rules, an FTA is allowed as an exception to equal treatment, but only if it covers "substantially all the trade" between the partners (GATT Article XXIV).
The Finance Minister's figures (92.5% of tariff lines and about 97% of trade value opened by India) describe how deep this FTA goes. Because the EU will remove duties on labour-intensive goods such as garments, shoes and toys, Indian small firms can compete on price with rivals like Bangladesh and Vietnam that already enjoy duty-free access in Europe.
Rules of Origin (RoO)
Rules of origin are the tests a country uses to decide where a product "comes from", that is, its economic nationality. This matters because a trade deal gives low or zero tariffs only to goods that truly come from the partner country. If a shirt is sewn in India from Indian fabric, it is clearly Indian. But if it is made from imported fabric, or only packed in India, the rules of origin decide whether it can still enter the EU duty-free as an "Indian" product.
The promised zero duties for Indian garments, shoes and toys will help only if these goods meet the India-EU rules of origin. Exporters who rely on imported fabric, leather or parts must check the product-specific rules and the 10% textile tolerance to know if they qualify. Simple rules and easy self-certification will decide whether small labour-intensive firms actually use the deal.
- India-EU FTA concluded: 27 January 2026, at the 16th India-EU Summit, New Delhi
- Talks: launched 2007, stalled 2013, relaunched June 2022
- India's offer (as stated by the Finance Minister): 92.5% of tariff lines, about 97% of trade value
- EU's offer (as stated by the Finance Minister): about 99% of trade value, about 97% of tariff lines
- About US$33 billion of India's labour-intensive exports to get immediate zero-duty access once the deal is in force
- India-EU goods trade: about US$136 billion in 2024-25; EU is India's largest goods trading partner
- Entry into force expected in 2027, after signature, European Parliament consent and approval in India