In what has been touted as the 'mother of all the deals', the India- European Union Free Trade Agreement (FTA) signed on January 27 has seen some major changes in the automobile, textile, and plastic sectors, among others. The deal, however, has offered no exemption to India from the European Union’s Carbon Border Adjustment Mechanism (CBAM) costs.

Reports suggest that India's commerce secretary Rajesh Agarwal stated that the European Union’s Carbon Border Adjustment Mechanism (CBAM) will continue to apply to Indian exports, with no exemption or waiver secured under the India–EU Free Trade Agreement. However, he noted that India and the EU have agreed on a technical cooperation framework aimed at helping the Indian industry navigate CBAM-related requirements and retain access to the European market.

He further added that the two sides have agreed to establish a technical dialogue to address compliance pathways for Indian exporters, even as the CBAM regulation remains operational. The framework will also focus on facilitating the accreditation of CBAM verifiers in India by EU agencies, making it easier for domestic industries to access authorised verification services. In addition, both sides will work towards aligning technical processes related to the measurement of carbon emissions in their respective economies.

His statement further highlighted that India has secured certain commitments under the CBAM framework, including a forward-looking most-favoured-nation assurance, under which any future flexibility extended by the EU to other trading partners would also be applicable to India. It also pointed to enhanced technical cooperation on the recognition of carbon pricing systems and verifiers, along with provisions for financial assistance and targeted support to help the Indian industry lower greenhouse gas emissions and meet CBAM compliance requirements.

Auto sector hails the decision

Under the proposed framework, import duties on completely built units (CBUs) from Europe will be sharply reduced from the current 110% to 35%, with rates set to fall further to 10% after a defined transition period. The concessional tariffs will be subject to an annual quota of 250,000 vehicles. Importantly, the lower duties will apply only to vehicles with a landed value exceeding €15,000 (around ₹13.5–16 lakh), a safeguard aimed at insulating the mass-market segment from import competition. These account for nearly 90% of India’s passenger vehicle market.

As the two regions iron out the finer details of the deal, the president of the Society of Indian Automobiles (SIAM), Shailesh Chandra, who is also the MD &CEO of Tata Motors Passenger Vehicles Limited, states that the agreement will play a key role as India marches towards 'Viksit Bharat'.

" While we look forward to specific details of the India-EU FTA with respect to the auto industry, the calibrated approach to balance market access and domestic manufacturing should give us a win-win between increased global participation on one hand and growth of the domestic auto industry with investments and employment on the other hand. This will also enable increased choice for consumers in both regions,” he said in a statement uploaded by SIAM on its LinkedIn account.

CS Vigneshwar, the president of the Federation of Automobile Dealers Associations (FADA), added that the calibrated tariff glide path, TRQ safeguards, and protection for India’s EV trajectory announced by the government closely reflect the balanced recommendations they had placed on record. The association had undertaken a focused study combining inputs from select European OEMs and submitted a detailed representation to the Ministry.

"With over 95% of European OEM sales already locally manufactured, this FTA strengthens Make-in-India, expands consumer choice, and opens reciprocal export opportunities for Indian OEMs," states Vigneshwar.

European carmakers, especially those producing premium vehicles, are also likely to gain easier access to India, potentially boosting auto exports that currently face steep import duties. This is expected to raise the offerings for Indian consumers, especially those in the luxury segment.

Reacting to the development, the European Automobile Manufacturers’ Association (ACEA) called it a landmark moment in global trade relations. "Running contrary to the global trend, this FTA is a strong statement of intent by both parties to further open and mutually beneficial trade relations," the association stated in a statement. 

It will greatly help European automobile exports enter a market of 4 million passenger cars that, until now, has been protected by prohibitively high import tariffs of up to 110%, added the association.

The agreement does come with important restrictions, such as quota limitations and residual tariffs, which will limit the potential benefit to some extent. However, a full assessment of the detailed terms of the deal will begin once the texts are published in the coming weeks.

ACEA members have supported this FTA, seeking timely approval from EU member states and the European Parliament for its implementation as soon as possible.

A major scale-up in the electronics trade

The India Cellular and Electronics Association (ICEA) calls it a strategically significant step in India’s long-term economic and industrial trajectory. At a time of global trade uncertainty, the FTA signals a shared commitment to predictable and trusted partnerships between two of the world’s largest economies, which together account for nearly 25 percent of global GDP and about one-third of global trade.

In a statement, the association stated that for India, the FTA goes beyond trade expansion and reflects its readiness to engage with a highly standards-driven market like the EU, backed by reforms in manufacturing, trade facilitation, and ease of doing business. In 2024–25, India–EU trade in goods reached about USD 136.5 billion, while services trade exceeded USD 83 billion, highlighting the depth of the relationship. The agreement aligns with India’s broader vision of building a globally competitive manufacturing and export ecosystem.

Electronics emerges as a key high-growth area within the FTA. The current electronics trade of around USD 18 billion with the EU could rise to USD 50 billion by 2031 and exceed USD 100 billion by 2035, driven by mobile phones, IT hardware, consumer electronics, and emerging technologies. With over 99% of Indian exports expected to gain preferential EU access, the FTA enhances export competitiveness and positions India as a reliable manufacturing partner amid global value chain diversification. It also opens avenues for deeper collaboration in electronics, semiconductors, capital goods, and advanced manufacturing, enabling the Indian industry to move up the value chain.

Commenting on the development, Pankaj Mohindroo, chairman, ICEA, said, “Over the coming decade, this alignment creates the foundation for a substantial expansion of electronics trade between India and the European Union, anchored initially in mobile phones and expanding across IT hardware, consumer electronics, and emerging product categories. For European lead firms, India offers a scalable and cost-efficient manufacturing base, while for India, the EU represents a high-value, standards-driven market that can anchor long-term export growth.”

A strategic step for the plastics and petrochemical sector

Ravish Kamath, president, PlastIndia Foundation, said that the FTA opens new growth avenues for India’s plastics and petrochemicals sector by improving market access, reducing tariff and non-tariff barriers, and encouraging innovation-led manufacturing.

“The India–EU FTA will strengthen India’s position as a global manufacturing and export hub for plastics and allied products. It will facilitate greater integration of Indian industry with European value chains, promote sustainable materials, and enable technology transfer—especially in recycling, circular economy solutions, and advanced polymer applications,” Mr. Kamath stated.

"The European Union (EU) remains India’s second-largest export destination for plastics, with exports valued at approximately USD 3.7 billion. Industry estimates indicate an untapped potential of nearly USD 9 billion, which the India–EU Free Trade Agreement is poised to unlock. This landmark agreement is expected to drive multi-fold growth for the sector by enhancing competitiveness, expanding market access, and encouraging higher value-added exports. At present our total plastic exports are USD 10 Billion during the year 2025, " said Mr Kamath

He added that the agreement would boost exports of value-added plastic products, attract foreign direct investment, and generate employment across the plastics value chain, while aligning with India’s vision of Make in India and Atmanirbhar Bharat.

PlastIndia Foundation also emphasized that the FTA provides an opportunity for Indian manufacturers, particularly MSMEs, to upgrade quality standards and adopt global best practices, ensuring competitiveness in international markets.