The India-EU trade deal, hailed as the "mother of all deals" by Prime Minister Narendra Modi, is poised to reshape economic ties between the two regions. Concluded after nearly two decades of negotiations, the agreement is expected to boost India's manufacturing and services sectors, while also strengthening investors' confidence. The formal signing is expected later in the year after legal review, with the deal anticipated to take effect by early next year.

Impact on Trade and Economy

The India-EU Free Trade Agreement (FTA) is projected to bring about a qualitative shift in bilateral relations, fostering cooperation across trade, defense, security, climate change, and technology. The EU has confirmed this agreement represents the most ambitious opening India has ever offered to a partner. Duties will be reduced or eliminated on approximately 96.6% of EU goods entering India, potentially saving European exporters €4 billion annually and aiming to double EU exports to India by 2032. The agreement encompasses approximately 25% of global GDP and about one-third of global trade.

Sectors to Benefit

Several sectors in India are expected to benefit significantly from the FTA:

• Textiles: The FTA could provide a boost to India's textile exports to the EU, which are already geared towards higher value-added products. The elimination of tariffs could enhance both revenues and margins for Indian textile companies.
• Automobiles and Auto Components: India is likely to reduce import tariffs on cars from the EU, which may fall from 110% to as low as 10% for select EU cars. This could intensify competition in the premium and luxury segments, while electric vehicles (EVs) are expected to remain protected for five years. Manufacturers of auto components are also expected to benefit.
• Pharmaceuticals and Chemicals: The Indian government has decided to eliminate tariffs on EU chemical products. Duties of up to 11% on EU pharmaceutical products may also be removed almost entirely. This could lead to a rise in high-value exports in these sectors.
• Marine Products: The agreement is expected to benefit India's labor-intensive sectors, including marine products.
• IT, Telecom, and Financial Services: The FTA aims to provide easier access for services such as IT, consulting, and finance. EU companies will gain privileged access to the Indian services market, including financial services and maritime transport.
• Engineering Goods: The FTA is also expected to benefit the engineering goods sector.

Impact on Stocks

The India-EU trade deal is expected to drive attention toward auto stocks, as India plans to cut car import duties, which will reshape market sentiment. Auto stocks such as Tata Motors, Mahindra & Mahindra, and Maruti Suzuki are expected to be in focus. Shares of defense companies such as Bharat Dynamics, Bharat Electronics Limited, Garden Reach Shipbuilders & Engineers (GRSE), and Hindustan Aeronautics Limited (HAL) are also expected to be in the spotlight. Shrimp exporters also rallied, with Avanti Feeds rising 3% to Rs 780 per share, while Apex Frozen Foods jumped 12% to Rs 296.

Other Key Aspects

The trade agreement includes provisions for the protection of Intellectual Property (IP) rights, covering copyright, trademarks, designs, and trade secrets. It also has a dedicated chapter on trade and sustainable development, focusing on environmental protection, climate change, workers' rights, and women's empowerment. Furthermore, the EU is envisaging €500 million in support over the next two years to help India's efforts to reduce greenhouse gas emissions and accelerate its long-term sustainable industrial transformation.

Challenges and Considerations

While the FTA is expected to bring numerous benefits, challenges remain. These include navigating regulatory hurdles and ensuring smooth implementation of the agreement. Sensitive agricultural sectors in Europe, such as beef, chicken meat, rice, and sugar, are excluded from liberalization in the agreement.

Overall, the India-EU trade deal marks a significant milestone in the economic relations between the two regions. By reducing tariffs, streamlining regulations, and promoting cooperation, the agreement is poised to unlock new opportunities for growth and investment, benefiting businesses and consumers alike.