India and the European Union are moving closer to a free trade agreement (FTA) that could grant duty-free access to over 90% of Indian goods entering the EU market, while protecting sensitive sectors such as dairy and agriculture. Officials familiar with the negotiations say the deal aims to be “balanced and mutually beneficial”. It is expected to remove most tariff and non-tariff barriers, yet preserve safeguards for products considered vulnerable on either side. For India, this includes dairy, where domestic producers remain sensitive to global competition.
GSP Benefits to Become Irrelevant
Once the FTA becomes operational, the EU’s Generalised System of Preferences (GSP), a unilateral scheme offering reduced duties to developing nations, is likely to lose relevance for Indian exporters. Government sources say the recent extension of the GSP suspension affects less than 3% of India’s exports to the EU. Trade experts note that FTA tariff concessions would exceed GSP benefits, making the older framework redundant. The Federation of Indian Export Organisations (FIEO) has said Indian exporters would gain broader and more predictable market access under the FTA regime.
Limited Impact of GSP Suspension
The EU recently extended the suspension of GSP benefits for India for three years, effective January 1. However, officials stressed that the move is routine and affects only a small share of trade. According to government estimates, the revised regulation impacts just 2.66% of India’s exports to the EU. Several product categories, including chemicals, plastics, machinery, metals and transport equipment, fall under the suspension. Agricultural items, however, remain largely unaffected, reducing the immediate impact on India’s agri-exports.
Dairy Sector Remains Protected
While the FTA is expected to expand market opportunities in manufacturing and industrial goods, negotiators are working to ensure that India’s dairy sector remains protected. Dairy is a politically and economically sensitive area due to the sector’s role in supporting millions of smallholder farmers. Experts suggest that India will likely maintain tariff barriers or quota safeguards on dairy imports, while seeking improved access for its processed food and agri-based exports in the EU.
Broader Trade Implications
In 2023, EU imports from India stood at approximately €62.2 billion, of which only a fraction was covered under GSP benefits. With India’s export competitiveness rising, many products have already “graduated” out of the GSP framework. The proposed FTA could therefore mark a structural shift in India–EU trade relations, replacing unilateral preferences with a comprehensive, rules-based agreement that enhances long-term market certainty.
