India’s trade policy is undergoing a strategic realignment as challenges with the United States prompt a renewed focus on European markets. The ongoing negotiations and recent agreements signal an effort to diversify trade partners and secure better access for Indian exports.

Current Trade Climate

• Stalled Negotiations with the US: Bilateral trade talks are facing obstacles due to a 25% reciprocal tariff imposed by the US, which has impacted multiple sectors of Indian exports.
• Selective Exemptions: Pharmaceuticals, electronics, and energy products remain exempt, providing some cushion to exporters.

Shifting Focus to the EU

• Exploring Alternatives: With US talks slowing, India is intensifying its engagement with the EU.
• UK FTA as a Catalyst: The recently concluded Free Trade Agreement (FTA) with the UK has given India leverage, aligning many negotiation points with EU demands.

Key Negotiation Areas

• Duty-Free Access: Under the UK deal, India achieved 100% duty-free access for most exports, benefiting labor-intensive sectors.
• Market Concessions: India has opened its automotive and alcohol sectors to foreign players to attract reciprocal benefits.
• Digital and Investment Frameworks: Upcoming discussions with the EU are expected to focus on digital trade and investment protection, mirroring UK commitments.

Progress with the EU

• Resumed Momentum: EU-India talks restarted in June 2022 after nearly a decade and have been steadily progressing.
• Closing Chapters: Key areas like transparency and intellectual property rights have seen agreement.
• Future Milestones: The EU-India FTA is targeted for completion by the end of 2025, with a political summit planned in late 2025 or early 2026.

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Impact on Indian Exports

Aspect	Details
Increased Tariffs	The 25% reciprocal tariff by the US raises export costs, particularly for non-exempt sectors.
Product Exclusions	Pharmaceuticals, certain electronics, and energy products remain outside the tariff ambit, cushioning about one-third of exports.
Loss of Market	The US is a significant export destination; higher tariffs could reduce competitiveness and demand.
Diversification Strategy	India is focusing on enhancing trade with the EU and leveraging the UK FTA to maintain and expand market access.
Concessions to EU	Tariff cuts on automobiles and alcohol are being offered to secure better EU market entry.
Labor-Intensive Sectors	Duty-free access under the UK FTA benefits labor-heavy industries like textiles, footwear, and handicrafts, with potential EU spillover.
Ongoing Negotiations	The EU discussions are expected to be comprehensive, targeting multiple sectors and investment protections.
Future Outlook	A successful EU-India FTA could open a vast market, potentially offsetting losses from the US and boosting export growth.

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Conclusion

India’s trade environment is shifting in response to tariff challenges with the US. The strategic pivot toward Europe, reinforced by the UK FTA, shows a clear intent to diversify markets and reduce dependence on a single partner. The coming years will be crucial as India balances concessions with national interests and seeks to secure a robust foothold in the EU.