India and the European Union on Tuesday closed negotiations on what both sides are calling the “mother of all deals”.
The pact is expected to be signed later this year and may come into force from early next year.
Taken together, India and the EU account for 25 per cent of global GDP and roughly one-third of global trade, about US $11 trillion of the $33-trillion international commerce.
After summit-level talks with European Commission President Ursula von der Leyen and European Council President Antonio Costa, Prime Minister Narendra Modi announced the conclusion of the talks.
“This is not just a trade agreement. This is a new blueprint for shared prosperity,” Modi said.
Europe-bound Indian exports
The headline gain for India is near-universal duty-free access to the EU. Once implemented, over 93 per cent of Indian goods will enter the 27-nation bloc at zero duty.
EU tariffs on Indian goods are already relatively low, averaging 3.8 per cent, but under the agreement they will fall sharply to about 0.1 per cent. The biggest relief comes in sectors where duties were high.
These include marine products, where tariffs range from zero to 26 per cent; chemicals, up to 12.8 per cent; plastics and rubber, up to 6.5 per cent; leather and footwear, up to 17 per cent; textiles and apparel, up to 12 per cent; and furniture and light consumer goods, up to 10.5 per cent.
Duties on gems and jewellery, toys, sports goods, and transport equipment such as railway coaches, ships and aircraft parts will also be eliminated.
What could get cheaper for Indian consumers
On the import side, the EU will eventually get duty-free access for over 90 per cent of its goods over a 10-year period.
India will remove duties on about 30 per cent of EU goods on day one, with the rest following in phases.
Automobiles, wines, spirits, beer, olive oil, kiwis, pears, fruit juices, chocolates, pasta, pastries, biscuits, pet food, sausages, sheep meat and other processed foods, which currently attract duties ranging from 33 per cent to as high as 150 per cent, could become cheaper over time, provided importers, states and retailers and pass on those benefits to the customers.
Premium European car brands such as BMW, Lamborghini, Porsche and Audi are likely to see prices ease in India under a quota-based duty concession system.
What stays costly
There will be no duty concessions on sensitive agricultural and dairy products, including maize, wheat, rice, soya, poultry, milk, cheese, ethanol, tobacco, certain vegetables and meat.
The EU, too, has protected its own sensitive sectors, including sugar, beef, meat and poultry.
Cars, quotas and a calibrated opening
Automobiles remain the most economically delicate part of the deal.
EU cars will get phased duty reductions, with India eventually cutting levies to as low as 10 per cent under a quota of 2.5 lakh vehicles per year. Current import duties range from 66 per cent to 125 per cent.
Electric vehicles will be protected for the first five years. “It will not start from day one because our EV market is growing, and the EV production is growing,” an Indian official told PTI.
Duty cuts for EVs will begin later and vary by segment.
Services, and carbon rules
Beyond goods, the EU has opened 144 of its 155 services sub-sectors to India, while India will open 102.
Key gains are expected in information technology and IT-enabled services, professional services, education, finance, tourism and construction.
On mobility, the agreement offers a predictable framework for short-term business travel and includes commitments on student mobility and post-study work visas.
On the contentious Carbon Border Adjustment Mechanism, or carbon tax, India has secured a most-favoured-nation assurance. Any relaxations granted by the EU to other countries will automatically apply to Indian exporters.
The pact makes the EU India’s 22nd FTA partner and adds to a growing list of trade deals signed since 2014.
