The upcoming India–EU summit is anticipated to mark a decisive shift in relations between the 2 sides, with financial cooperation and safety rising as central pillars at a time when reliance on the USA is more and more being questioned. The assembly is more likely to speed up progress on a long-pending free commerce settlement (FTA) and pave the best way for a deeper defence and safety partnership aimed toward diversifying army provide chains and bettering entry to superior capabilities for each areas.
The announcement of a commerce deal may observe Prime Minister Narendra Modi’s conferences with European Council President António Costa and European Fee President Ursula von der Leyen, who will co-chair the India–EU summit throughout their go to to India from January 25 to twenty-eight. If accepted and ratified by the European Parliament, the settlement may present a big enhance to Indian exports, significantly in labour-intensive sectors corresponding to textiles and jewelry. Nevertheless, the EU’s ratification course of is anticipated to take at the least a 12 months, delaying the precise on-ground advantages for exporters.
Difficult occasions for exporters
The renewed diplomatic momentum comes at a difficult time for Indian exporters. As they grapple with increased US tariffs, shipments to the European Union have additionally been hit by the suspension of tariff preferences below the EU’s Generalised System of Preferences (GSP). From January 1, 2026, GSP advantages have been absolutely withdrawn on an estimated 87 per cent of India’s exports to the bloc.
The suspension applies to a broad vary of merchandise, together with mineral merchandise, chemical compounds, plastics, iron and metal, rubber, textiles, pearls and valuable metals, motor automobiles, equipment and electrical home equipment. This stuff will now face full most-favoured nation (MFN) tariffs, elevating prices and weakening value competitiveness for Indian exporters within the interim interval.
“Now concessions are suspended for 87 per cent worth of Indian items exports to EU and these need to face full MFN tariffs. Even when India indicators its FTA take care of the EU straight away, it could take one 12 months or extra to get applied. Indian exporters will really feel the pinch until that point,” Ajay Srivastava, Founding father of the World Commerce Analysis Initiative (GTRI), instructed Hindu Businessline.
India-EU FTA
India and the EU have been working to shut remaining gaps within the FTA negotiations, which had been revived in 2022 after a nine-year pause. The talks gained traction final 12 months amid rising international commerce tensions and have since gathered tempo following sharp shifts in US commerce coverage.
Beneath President Donald Trump, the US imposed tariffs on each India and the EU, disrupting long-standing commerce relationships. New Delhi was penalised for buying Russian crude, with a cumulative 50 per cent tariff imposed on Indian shipments to the US. Relations between Washington and Europe have additionally deteriorated since Trump returned to energy in January 2024, with disagreements spanning a number of points, most not too long ago together with tensions over Greenland. These developments have pushed each India and the EU to hunt higher strategic and financial autonomy via nearer bilateral engagement.
GSP advantages
An replace from the European Fee on December 1, 2025, acknowledged that a number of Indian merchandise misplaced GSP advantages from January 1, 2026, after their common import values exceeded scheme thresholds for 3 consecutive years. Merchandise that proceed to take pleasure in GSP advantages—corresponding to agriculture and meals gadgets, leather-based items, wooden and paper merchandise, footwear, optical and medical devices, and handicrafts—account for lower than 13 per cent of India’s exports to the EU, in line with a GTRI evaluation.
“The newest GSP withdrawals considerably erode value competitiveness vis-à-vis nations corresponding to Bangladesh and Vietnam, which proceed to profit from duty-free or lower-duty entry,” stated Ajay Sahai of the Federation of Indian Export Organisations.
Beneath GSP, exporters obtained a margin of choice via diminished tariffs. For a lot of textiles, clothes and industrial items, this averaged about 20 per cent. “As an illustration, an attire product going through a 12 per cent MFN tariff paid solely 9.6 per cent below GSP. From January 1, this profit ends and exporters should pay the total 12 per cent obligation,” the GTRI report famous.
EU knowledge reveals India has made intensive use of GSP advantages, exporting practically 79 per cent of eligible merchandise at preferential charges. Nevertheless, as extra sectors graduate out of the scheme, solely about 21 per cent of whole EU imports from India had been eligible for preferences in 2023—heightening expectations from a complete FTA to revive competitiveness.
(With company inputs)
