India-EU Trade Deal to Address Most of the Sticky Points

 Chennai: As India and the European Union get closer to the announcement of a trade deal, tariff elimination on more than 90 per cent of goods will benefit exports of both economies as the products are complementary in nature. Regarding sticky points, India is expected to lower tariffs and provide quota for high-end automobiles, wine, and dairy products, while seeking relaxation on environmental regulations like CBAM, and regulatory norms for services exports.

The ‘Mother of all Deals’, as termed by European Commission President Ursula von der Leyen, seeks tariff cuts that would primarily reduce input costs, deepen value-chain integration and increase volumes, which are classic FTA gains that benefit producers and consumers on both sides, finds GTRI.

Indian and European products are in different segments of the value chain and hence complement each other. Indian exports to EU, such as smartphones, garments, footwear, tyres, pharmaceuticals, auto parts, refined fuels and cut diamonds—largely substitute EU’s imports from third countries rather than compete with EU manufacturing.

Exports by the EU are mainly high-end machinery, aircraft, core electronic components, chemicals, quality medical devices and metal scrap and feed India’s factories, recycling industry and MSME clusters, raising productivity and export competitiveness. In FY2025, India–EU goods trade exceeded $136 billion.

The trade talks that started in 2007 are expected to culminate by resolving some of the sticky points.

Key sticking points in the talks include tariffs on dairy, wine, high-end and luxury automobiles, and regulatory barriers affecting labour-intensive goods. India is reluctant to lower auto import duties and is cautious about committing to EU demands on sustainability and labour standards.

European winemakers are pushing for greater access as imported wines currently face a 150 per cent tariff and reduce it to 30-40 per cent levels. Europe wants India to cut import duties on completely built-up (CBU) vehicles to 10-20 per cent, down from the current 100-125 per cent. This would significantly lower the price of European luxury cars like BMW, Mercedes-Benz, and Volkswagen, and challenge the prospects of companies which have set up manufacturing units in India.

One of the biggest hurdles have been the EU’s aggressive environmental regulations, particularly the Carbon Border Adjustment Mechanism (CBAM), deforestation rules, and supply chain due diligence laws, which come into force from January 1, 2026. These regulations are imposing additional costs on Indian exports, especially on iron, steel, aluminium and cement exports.

In services exports, remote online service delivery restrictions by the EU requires Indian companies to establish local offices and maintain high minimum salary thresholds for Indian professionals working in Europe and this makes it tough for Indian IT firms offering services remotely.

European firms are seeking greater access to India’s banking, legal, accountancy, auditing, and financial services sectors. The EU has been pushing for access to India’s procurement market for central government and public sector undertakings (PSUs) and this is likely to be opened up as India has already provided access to UAE.