Tag: PLI scheme and export competitiveness India

Rohit Kumar Singh, PhD in Economics and PMP certified policy and trade professional, writes that tariff parity, rules of origin, and investment incentives under the India EU trade agreement could shift India away from cost based exports toward deeper value creation.

India’s trade relationship with Europe has long been significant, but rarely transformative. Bilateral trade stood at about 136.5 billion dollars in 2024 25, with Indian exports accounting for 75.85 billion dollars. Yet scale alone has not delivered structural change. What India exports to Europe, and how those exports are positioned, has remained largely unchanged for years. This is why the India EU Free Trade Agreement deserves close attention. Not as a trigger for an immediate export surge, but as a framework that could alter the character of India’s export growth.
The composition of India’s exports to the EU highlights the challenge. Petroleum products dominate, driven more by refining arbitrage than domestic value addition. Textiles, auto components, and pharmaceuticals follow, but largely in segments where India competes on cost. Cost based competitiveness is fragile. It depends on tariff differentials, currency movements, and wage gaps that can narrow quickly, leaving exporters exposed.

The textile sector illustrates this clearly. Indian apparel exports to the EU face tariffs ranging from 12 to 16 percent, while competitors such as Bangladesh and Vietnam benefit from preferential or zero duty access. Despite scale and experience, India struggles to expand its market share. In leather and footwear, India accounts for only about 3 percent of EU imports, a modest outcome for a country with a large manufacturing base.
The Free Trade Agreement directly alters this equation. By eliminating or reducing tariffs on 99.3 percent of India’s exports to the EU by value, it removes a structural disadvantage that has persisted for years. In textiles alone, more than 70 percent of tariff lines, covering over 90 percent of India’s textile exports, receive immediate duty elimination. This is not merely a pricing adjustment. It reshapes the investment decisions firms are willing to make.

Thin margins encourage conservative behaviour. Firms continue producing familiar, lower value products even if it traps them in commoditised segments. Duty free access creates room to move into higher quality categories such as technical textiles, man made fibre apparel, and sustainability linked fabrics that were previously difficult to justify.
A similar shift is possible in chemicals and pharmaceuticals. The EU pharmaceutical and medical products market exceeds 570 billion dollars. Indian firms already participate, but tariffs that reach up to 22 percent in some chemical categories have limited expansion into more complex products. Tariff elimination improves margins and lowers the cost of importing European intermediates, making process upgrades commercially viable.

Engineering goods and auto components may see the most consequential impact. India exports engineering goods worth about 16.6 billion dollars annually, while the EU import market exceeds 2 trillion dollars. Europe already absorbs a large share of India’s auto component exports, yet suppliers remain concentrated in relatively simple parts. Removing tariffs of up to 22 percent makes it economically sensible to move into higher value assemblies, electronics, and electric vehicle systems.
What distinguishes this agreement is not tariff relief alone, but its rules of origin. Preferential access is tied to substantial transformation within India, ensuring real domestic value addition rather than simple routing of imports. At the same time, flexibility for sectors dominated by small enterprises reflects supply chain realities.

Cumulation provisions further strengthen the framework by allowing manufacturers to source inputs from partner countries while retaining preferential access, provided final processing occurs in India. This aligns with the reality of modern manufacturing, where supply chains are regional rather than purely national.
Investment effects could compound these gains. Manufacturing foreign direct investment into India reached 19.04 billion dollars in financial year 2024 25, an 18 percent increase compared to the previous year, with cumulative manufacturing investment exceeding 165 billion dollars over the past decade. European firms have often hesitated to scale manufacturing in India because component tariffs made phased localisation unattractive. Zero duty access lowers this barrier and encourages gradual localisation.

Employment outcomes follow structure. Textiles, leather, and food processing together employ over 80 million people. Restoring tariff parity helps protect these jobs while opening pathways to higher value activities. Small and medium enterprises, which account for nearly all manufacturing units, stand to benefit from deeper supply chain integration. Complementary initiatives such as the production linked incentive scheme strengthen this linkage between exports and domestic manufacturing.
None of this will happen automatically. European markets remain demanding. Without faster regulatory alignment, stronger testing infrastructure, and better enterprise capability, tariff advantages could be offset by non tariff barriers. The agreement removes an external constraint. Domestic policy must now address the internal ones.
Handled well, the India EU Free Trade Agreement can quietly change the nature of India’s exports. Not by chasing volumes, but by deepening value. That is where durable growth lies.

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