India–EU FTA seen as credit positive, to boost manufacturing and foreign investment: Moody’s
India and the EU announced the conclusion of negotiations for the long-pending FTA earlier this week, describing it as the “mother of all deals”.
Under the agreement, about 93% of Indian shipments will enjoy duty-free access to the 27-nation bloc, while imports of luxury cars and wines from Europe are expected to become cheaper.
The pact, concluded after negotiations spanning nearly two decades, creates a combined market of around two billion people across the world’s fourth-largest economy, India, and the EU, the second-largest economic bloc.In a commentary, Moody’s Ratings said India’s conclusion of trade talks with the EU reflects its continued efforts to selectively diversify trade relationships.“When in effect, the FTA will be credit positive, with lower tariffs and better market access supporting India’s ambition to develop its manufacturing sector, attract foreign investment, and strengthen the export competitiveness of its labour-intensive goods,” Moody’s said, PTI quoted.The free trade agreement is expected to be formally signed and implemented this year.Moody’s noted that lower tariffs on EU imports may also help ease input costs, although such imports currently account for a smaller share of India’s overall import bill.“European carmakers would gain easier access to the world’s third-largest car market, allowing them to introduce more premium models under a calibrated liberalisation framework—an opportunity for EU brands but adding competition for Indian manufacturers,” it said.The rating agency added that the broader benefits of the FTA would depend on progress in complementary areas such as improving business friendliness and streamlining regulations.Once implemented, almost all Indian goods — over 93% — will receive zero-duty access to the EU market, except for automobiles and steel.
For the remaining over 6% of products, Indian exporters will benefit from tariff reductions and quota-based duty concessions, including for automobiles.Moody’s pointed out that the EU’s average tariffs on Indian goods are already relatively low at around 3.8% and will be reduced to about 0.1% under the agreement.However, duties are currently high in several sectors, including marine products (0–26%), chemicals (up to 12.8%), plastics and rubber (up to 6.5%), leather and footwear (up to 17%), textiles and apparel (up to 12%), gems and jewellery (up to 4%), railway components, aircraft parts, ships and boats (up to 7.7%), furniture and light consumer goods (up to 10.5%), toys (up to 4.7%) and sports goods (up to 4.7%).Duties on all these items will be eliminated by the EU under the pact.On the other hand, the EU will receive duty-free access for over 90% of its goods in India over a ten-year period.
India will remove duties on about 30% of European goods on the first day of the agreement’s implementation.The main EU products that will get duty concessions include automobiles, wines, spirits, beer, olive oil, kiwis and pears, fruit juices, processed foods such as breads, pastries, biscuits, pasta and chocolates, pet food, sheep meat, sausages and other meat preparations.At present, these goods attract import duties ranging from 33% to 150%.Prices of imported cars from Europe are widely expected to come down, with India agreeing to gradually cut import duty to 10% from 110% for up to 2.5 lakh vehicles a year — more than six times the quota offered under the India-UK trade agreement.
