Why India’s ‘mother of all deals’ with the EU could be a game changer
Investing.com -- India’s newly signed free-trade agreement with the European Union is being described by economists as a turning point in the country’s trade strategy, offering near-universal access to one of the world’s largest markets at a moment when global supply chains are being reshaped.
The agreement grants India preferential access across 97% of EU tariff lines, covering 99.5% of trade value, with a significant share eligible for immediate duty elimination, according to an ING Economics.
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The scope and depth of the deal have led some analysts to label it the “mother of all deals,” reflecting both its scale and its potential impact on India’s export competitiveness.
The deal comes as Asian economies step up efforts to diversify exports away from the United States, a shift that helped support regional export growth last year, ING said.
The India-EU pact reinforces that trend, while also underscoring what the note described as the EU’s “patient, pragmatic approach” to accommodating India’s sensitivities around market access.
The EU already accounts for about 17% of India’s exports, just behind the U.S. at 21%. The EU’s share has risen by roughly 3 percentage points since the pandemic, and India’s export mix to both markets is broadly similar, with petroleum products carrying a larger weight in shipments to Europe.
ING said that if high U.S. tariffs on Indian goods persist, the agreement allows India to pivot toward the EU “without overhauling its export mix.”
More than 60% of India’s merchandise exports to the EU come from a handful of categories, including petroleum products, pharmaceuticals, electronics and minerals, alongside auto components and textiles.
The elimination of tariffs across a wide range of goods is expected to particularly benefit labour-intensive sectors such as marine products, leather and footwear, garments, handicrafts, gems and jewellery, plastics and toys.
These industries, which ING said account for close to 2% of India’s GDP in exports, have been among the most affected by U.S. trade barriers.
“These sectors are highly labour-intensive and low-value-added, exactly where India competes directly with China, Bangladesh, and Vietnam,” the note said, adding that lower EU barriers could strengthen job creation in some of India’s largest employment-generating industries.
The deal also preserves limits in politically sensitive areas. India has shielded agriculture and dairy, while agreeing to tariff reductions in areas such as food, beverages and automobiles, a balance ING said allows market expansion “without compromising domestic interests.”
Beyond trade, the agreement could reshape investment flows. The EU accounts for about 15% of India’s foreign direct investment, led by the Netherlands, Germany, Belgium and France.
While most EU investment has historically gone into services such as IT and software, ING said deeper integration could revive FDI momentum in manufacturing sectors including automobiles, chemicals and construction at a time when India’s net FDI inflows have softened.
Services are also a central pillar. India already exports services worth about 1% of GDP to the EU and runs a surplus of roughly 0.2% of GDP.
The agreement includes what ING called “broader and deeper” commitments across 144 services subsectors, covering IT, professional services, education and business services, creating a more predictable environment for Indian providers.
“The agreement marks a significant milestone for both India’s trade diversification ambitions and Asia’s evolving export landscape,” the note said.
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