India-EU Trade Deal: Negotiations on a Free Trade Agreement (FTA) between India and the EU are in the final stages. The EU has dealt a major blow to India by withholding Generalized Scheme of Preferences (GSP) benefits.
The EU gives a big blow before the trade deal, increases 20% tariff on Indian goods.
India-EU Trade Deal: The trade deal between India and the European Union is making headlines these days. It is expected that by January 27th, the deal, which both countries have been waiting for, will be finalized. However, in the meantime, another major news is emerging, which is no less than a shock for India.
The European Union has decided to suspend export benefits on some Indian goods. According to experts, this will result in a 20% increase in tariffs on most Indian exports to the EU as the EU is withdrawing exemptions granted under the Generalized System of Preferences (GSP), which will take effect on January 1st.
What is a matter of concern for India?
However, its impact on India will not last long, as the FTA with the EU will replace the GSP withdrawal as soon as it is signed. This means that the GSP will be replaced by the FTA as soon as the deal is finalized. The concern here is that it may take several months to receive the benefits of the FTA, even though the GSP withdrawal order came on September 25th. The EU withdrew GSP tariff preferences on approximately 87% of Indian imports from January 1st of this year, requiring most products to enter at the full MFN duty rate.
Ajay Sahai, CEO and Director General of the Federation of Indian Export Organisations (FIEO), said that the GSP withdrawal has obviously made Indian goods reaching the EU less competitive compared to suppliers like Bangladesh and Vietnam. He added, “This has had the greatest impact on industrial exports – including minerals, chemicals, plastics, iron and steel, machinery and electrical goods – which constitute a large part of India's shipments to the EU and are now fully covered by MFN tariffs.”
What is GSP?
GSP is a scheme in which developed countries impose low or zero tariffs on selected goods from developing countries to boost their exports. The Ministry of Commerce and Industry stated that since 2016, the EU has been gradually excluding Indian goods from GSP benefits.
The situation is such that now only 13 percent of Indian exports, including agricultural products and leather, will benefit under this scheme. From the financial year 2025, about 47 percent (35.6 billion dollars) of goods sent from India to the EU still fall under the scope of GSP benefits, whereas only 53 percent (40.2 billion dollars) of exports still fall under GSP. In the recent GSP review, the EU has also excluded certain products from Indonesia and Kenya from GSP benefits. GSP benefits are removed from a product category when these products become so successful in that country that they no longer need assistance to compete in the EU market.
