Moody’s Sees India–EU Trade Pact Supporting Manufacturing and Investment

India and the European Union have concluded negotiations on a wide-ranging free trade agreement, ending years of intermittent discussions. 

Moody’s Ratings considers the deal potentially credit positive, citing improved market access, lower tariffs and stronger prospects for manufacturing and foreign investment. 

Government officials describe the pact as broad in scope, with most traded goods and services covered.

Moody’s View on Economic Impact

Moody’s stated that the agreement reflects India’s strategy to broaden trade partnerships selectively. Once implemented, lower tariffs and expanded access to European markets are expected to support India’s manufacturing ambitions, encourage foreign direct investment and enhance competitiveness in labour-intensive exports.

The agency noted that reduced tariffs on European imports could also ease input costs, although such imports currently represent a modest share of India’s total import basket.

European car manufacturers are likely to gain structured access to India’s vehicle market, introducing increased competition for domestic producers.

Moody’s added that the overall benefits will depend on progress in improving business conditions and regulatory efficiency.

Scope of the Agreement

According to Indian officials, the agreement is set to cover nearly all bilateral trade. Duty concessions are expected to apply to about 99% of Indian exports to the EU and around 97% of EU exports to India. 

The pact concludes nearly two decades of negotiations and forms part of India’s broader effort to strengthen trade links with developed economies.

Negotiation Approach and Safeguards

Commerce Minister Piyush Goyal stated that sensitive sectors were either excluded or given extended transition periods to manage adjustment. 

The agreement includes selective market opening in areas such as automobile components, wines and spirits, while maintaining safeguards for domestic industries.

Automotive liberalisation is structured around a quota-based framework, offering European manufacturers controlled access while allowing space for Indian producers to adapt.

Sectoral Opportunities

Labour-intensive industries, including textiles, are expected to benefit from improved access to European markets. Officials indicated that textile exports to the EU could grow over time, potentially supporting additional employment in the sector.

The EU’s large import market in goods and services was highlighted as a key opportunity for Indian exporters across multiple industries.

Next Steps

The agreement will undergo legal review before formal signing. Ratification processes in both India and the EU will follow before the pact comes into effect.

Read More: EU and India to Discuss Framework for Defence Cooperation.

Conclusion

The India–EU free trade agreement marks a significant step in bilateral economic relations. While early expectations point to gains in trade, manufacturing and investment, the longer-term impact will depend on implementation, regulatory progress and how industries adjust to new competitive conditions.

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