The India–EU deal’s big swap: Automobiles & wine for labour-intensive goods

Commerce Ministry officials said that tariffs in the European Union are expected to go down to zero for labour-intensive goods, including marine sector that currently face up to 26%, leather and footwear up to 17%, chemical up to 12.8%, plastic and rubber up to 6.5%, textile and apparel up to 12%, gems and jewellery up to 4%, toys up to 4.7% and sports goods up to 4.7%.

After India-EU FTA, here’s a list of what who gains what

The EU, in a statement, said that duty on European motor vehicles has been reduced from 110% to 10% and the quota has been set at 250,000 units. The quotas on Electric Vehicles (EVs) will only come into effect in the fifth year, as Indian EV manufacturing is growing.

The EU said that tariffs on wine under the trade deal have been reduced from 150% to 20% for the premium range and 30% for the medium range. For spirits, the duty for the EU has been reduced from up to 150% to 40%, and for beer from 110% to 50%. Similar duty reduction was done in the UK and Australia FTA.

Government officials said that exports from the labour-intensive products were $35 billion in 2024 and that the duty on $33.5 billion worth of products will go down to zero when the trade deal enters into force. Their duty on the remaining goods will go down to zero in 3, 5 or 7 years.

“Under the deal, the EU has agreed upon tariff liberalisation in approximately 99.5% of the value of the goods traded, covering 96.8% of their tariff lines. In the case of India, the tariff liberalisation will be 97%, covering 92.1% of our tariff lines,” government officials said.

Quota for automobiles, EVs

Commerce Ministry officials said that India has given market access to the EU’s automobiles on a quota basis to take care of sensitivities on both sides. The quota has been allocated only for imported EU luxury cars that would retail above Rs 25 lakhs to protect the mid-level segment, where Indian automobile manufacturers are key players.

“Both sides have negotiated automobiles on a quota basis. Automobiles have been an aggressive demand from the EU. But we want our industry to grow too. So the market has been segmented into three parts, and the quotas are increasingly going down to protect the lower segments. If the market grows beyond the quota, we would want the EU manufacturer to set up units in India,” an official said.

However, the official clarified that quotas on Electric Vehicles (EVs) will only come into effect in the fifth year, as Indian EV manufacturing is growing.

“For every car quota that we have given, we have taken a 2.5 times quota from the EU so that India’s exports can also grow. The EU’s automobile market is twice our market. We stand at 5 lakh, and they stand at 10 lakh. This part of the negotiations went down to the wire and was the most complicated,” the official said.

States expected to benefit

The gains will be broad-based and cluster-led, benefiting manufacturing and services hubs across multiple states, especially those having large numbers of MSMEs and labour-intensive value chains, officials said.

States such as Maharashtra, Gujarat, Tamil Nadu, West Bengal, Assam, Kerala, Karnataka, Andhra Pradesh, Telangana, Punjab, Rajasthan and Uttar Pradesh are expected to gain due to the presence of textiles clusters and MSMEs dealing in engineering goods, leather and footwear, diamonds and jewellery, electronic goods and pharmaceuticals.

With tariffs on textiles moving from 12% to 0% and electronics from 14% to 0% on 99.6% of exports, garments manufacturing clusters in Ichalkaranji, Maharashtra, Tiruppur in Tamil Nadu, Ludhiana in Punjab stand to gain, officials said. Exporters of electronics and engineering goods in Bengaluru-Tumakuru, Chennai, Coimbatore, Noida along with the pharmaceutical sector in Visakhapatnam, Hyderabad, Thane-Raigad, Pune are expected to see a bump-up in orders and deepen EU supply chain linkages, officials said.

Veraval in Gujarat, Kochi and Alappuzha in Kerala stand to benefit through higher marine exports including shrimp and tuna exports, while Bharuch-Vadodara can scale up chemical exports with tariffs falling from 12.8% to 0% on 97.5% of chemicals exports to the EU, officials said.

Leather and footwear exporters in Kanpur and Agra in Uttar Pradesh, Vellore-Ambur in Tamil Nadu are also expected to benefit from a cut in tariffs from 17% to 0% now to the EU, they said.