India-EU FTA could sharply lift labour-intensive exports, limit risks to autos: Jefferies

While the agreement also requires India to open up its own market, Jefferies downplays fears of disruption to listed Indian companies.

• India-EU FTA gives 91% of Indian exports zero duty access from the deal's start
• Textiles, leather, and footwear sectors to benefit immediately
• Quotas and local manufacturing ease fears of European car imports.

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The long-awaited India-European Union free trade agreement (FTA) marks one of India’s most consequential trade deals in recent years, with Jefferies flagging a meaningful boost to labour-intensive exports and limited downside risks for domestic manufacturers, even in sensitive sectors such as automobiles. The market may be underestimating the scale and immediacy of the export-side benefits, focusing instead on headline risks around imports, while missing how unusually broad the duty-free access really is.

According to Jefferies, India has secured preferential access across 97 percent of EU tariff lines, covering 99.5 percent of the total trade value under the agreement. More importantly, 91 percent of Indian exports to the EU will attract zero import duty from the effective date of the deal, rather than being phased in gradually over several years.

This matters because it positions the India-EU FTA not as a narrow, sector-specific arrangement, but as a near-complete goods trade agreement, with immediate relevance for exporters. In practical terms, most Indian exporters shipping into Europe will face a materially improved pricing environment almost overnight once the agreement comes into force, rather than waiting for long transition periods.

The near-complete tariff liberalisation for Indian goods entering Europe

According to Jefferies, India has secured preferential access across 97 percent of EU tariff lines, covering 99.5 percent of the trade value. Crucially, 91% of Indian exports to the EU will face zero import duty from the effective date of the deal, with implementation expected by 2027 after procedural clearances on both sides.

The immediate winners, as mentioned in Jefferies' latest note, are labour-intensive sectors where India has long been tariff-disadvantaged.

Jefferies explains why India was structurally disadvantaged until now. India paid up to 12 percent tariffs on textiles/apparel in the EU. Competitors like Turkey, Bangladesh, and Pakistan already had zero-duty access. That tariff asymmetry, not just productivity, held India back. But these EU tariffs on Indian textiles and apparel will be potentially eliminated.

Similar tariff removals apply to leather, footwear, chemicals and select engineering goods, materially improving India’s export competitiveness in a market that imports roughly $125 billion worth of textiles annually.

While the agreement also requires India to open up its own market, Jefferies downplays fears of disruption to listed Indian companies.

Most commentary on the India-EU FTA so far has leaned into the fear narrative of European cars flooding India. But Jefferies pushes back on that narrative.

Even though headline car tariffs fall sharply, from 70 to 110 percent, to as low as 10 percent. The 250,000 unit quota, combined with the existing localisation/CKD structure means listed Indian OEMs face negligible risk. Most European OEM volumes are already insulated from tariff cuts because they’re manufactured or assembled locally.

Beyond autos, India has agreed to phased tariff reductions over five to ten years on a wide range of EU exports, including machinery, electrical equipment, aircraft and medical devices. Eventually, amounting to a tariff reduction of over $4 billion.

However, sensitive agricultural items on both sides have largely been excluded, allowing negotiators to sidestep long-standing political sticking points .

On non-tariff issues, Jefferies highlights what the deal does not change

There are no relaxations in the EU’s Carbon Border Adjustment Mechanism (CBAM), a key concern for Indian exporters, with the agreement offering only limited process-level smoothening rather than exemptions. This suggests that carbon compliance costs will remain a structural challenge for Indian manufacturers exporting to Europe.

The services component of the deal is another strategic gain

Both sides have agreed to greater market access across financial, IT and professional services, alongside easier mobility for Indian employees working in the EU. The agreement also lays the groundwork for social security arrangements over the next five years and creates a framework for Indian students to access European education and post-study work opportunities. These are areas that could deepen India’s services with the bloc over time.

From a macro trade perspective, the timing of the deal is significant

The EU is already India’s largest goods trading partner, with annual trade of around $140 billion. This exceeds India’s trade with both China and the US. Indian exports to the EU have been running at an annualised $75 billion, roughly 17 percent of total exports, while trade has remained broadly balanced, excluding the petroleum surplus that emerged after the Russia-Ukraine conflict.

Jefferies also situates the agreement within India’s broader push to integrate into global supply chains. The EU deal follows trade agreements with Australia and the UAE in 2022, and more recent deals with EFTA, Oman, the UK and New Zealand in 2025. A trade pact with the US, where India continues to face tariffs as high as 50 percent, remains elusive, making the EU agreement one of the most strategically important trade wins for India in the current global environment.