EU trade deal to narrow India's textile gap with Bangladesh, Pakistan: Jefferies

New Delhi: India's textile and apparel sector is poised for a significant boost following the conclusion of a Free Trade Agreement (FTA) between India and the European Union, which will eliminate import duties on Indian textile exports to the bloc, according to a Jefferies equity research report.

The agreement is expected to provide a major boost to India's textile and apparel sector, which currently faces tariffs of up to 12% in the EU, compared with zero duties for competitors such as Pakistan, Bangladesh and Turkey. Similar benefits are expected for exports of chemicals, leather products and footwear.

EU imports nearly USD 125 billion worth of textiles and apparel annually, making it one of the world's largest markets for clothing and fabric.


Jefferies analysts note that India has secured preferential access across 97% of EU tariff lines, covering nearly 99.5% of trade value. As a result, around 91% of Indian exports to the EU will face no import duties from the effective date of the agreement. In return, India will gradually reduce tariffs on 97% of EU exports over a period of five to ten years, translating into tariff savings of more than USD 4 billion for European exporters.

With tariffs set to drop to zero in labour-intensive sectors such as textiles, footwear, gems & jewellery, likely by 2027, India's competitiveness will jump.

Earlier, Union Minister of Commerce and Industry Piyush Goyal, on the FTA, had said the Indian textile industry is set to benefit from the India-EU FTA, with exports, and has the potential to grow from USD 7 billion to USD 30-40 billion very quickly.

He noted that this could generate 6-7 million jobs in the labour-intensive sector.

In the auto sector, the Jefferies report said tariffs on cars imported from the EU to India will be reduced from 70-110% to as low as 10%, with an annual quota of 250K units.

"We see limited impact on listed Indian OEMs as most of the vehicles, excluding certain high-priced models, of European OEMs are already manufactured in India or assembled from CKD kits that attract just 16.5% import duty," it said.

India's annual goods trade with the EU at ~USD 140bn exceeds trade with China or the US. Exports to the EU, at an annualised ~USD75bn (17% of India's exports), are ~80% of those to the US.

India-EU trade has been largely balanced, except for the petroleum product surplus India has seen since the 2022 Russia-Ukraine conflict. The FTA negotiations were initiated in 2007, and a renewed impetus since 2022 has finally led to the agreement now.

The procedure steps on both sides imply that the agreement may be implemented in 2027.