India-EU Free Trade Agreement: Estimating Its Effects on Bilateral Trade, Sectoral Opportunities and Risks

Abstract

 The conclusion of negotiations for the India-European Union Free Trade Agreement (India-EU FTA) on 27 January 2026 represents a major development in bilateral economic relations and creates a new framework for trade liberalisation between two large and increasingly interconnected economies. This study examines the agreement's prospective effects on bilateral merchandise trade, identifies sector-specific export opportunities for India and evaluates potential risks from increased import competition, regulatory requirements, adjustment pressures and trade diversion. The study adopts an ex-ante empirical assessment framework combining secondary trade data, tariff-liberalisation information, sectoral trade exposure analysis and evidence from the European Commission's Trade Sustainability Impact Assessment. The analysis finds that the agreement provides particularly significant opportunities for India's textiles and apparel, leather and footwear, pharmaceuticals, chemicals, marine products, gems and jewellery, agricultural and processed-food products. The agreement provides preferential access across approximately 97% of EU tariff lines covering about 99.5% of India's export value, while substantial Indian tariff liberalisation will improve European access to the Indian market. Existing modelling undertaken for the EU-India negotiations indicates that, under an ambitious scenario, India's merchandise exports to the EU could increase substantially, with particularly strong effects in textiles, leather and selected manufacturing sectors. However, the benefits are unlikely to be uniform. Indian producers may face intensified competition from European machinery, automobiles, chemicals, medical equipment, pharmaceuticals and other technology-intensive products. The study also highlights the importance of non-tariff measures, rules of origin, standards, sustainability requirements, carbon-related regulation and firms' capacity to utilise preferential access. The paper concludes that the economic effects of the FTA will depend not merely on tariff elimination but on India's ability to convert preferential market access into effective market utilisation through productivity enhancement, standards compliance, logistics improvement, export finance, technological upgrading and MSME integration into European value chains. Because the India-EU FTA negotiations concluded on 27 January 2026 but the European Commission was still seeking Council authorisation for signature and conclusion in September 2026, the paper should explicitly be presented as an ex-ante assessment rather than an ex-post causal evaluation.