The outlook for Indian firms with international ambitions has shifted radically since late January.
Last week, the US cut its import levy on Indian goods from 50% to 18% – a much better result than analysts had been expecting according to Aastha Gudwani, India Chief Economist at Barclays, who estimates the effective, trade-weighted tariff rate on Indian exports will fall to 16.3% from 35.7% currently.
“In terms of sectors, we believe the most beaten-down sectors under the 50% tariff threat (gems and jewellery, textiles and apparels, leather and footwear, and marine exports) are set to revive with the tariff overhang settling,” she says. “While we await fine print, this sizable tariff reduction addresses the overhang across asset classes, now acting as a solid tailwind instead.”
However, even this positive development was overshadowed by the announcement in late January that India and the EU had reached a trade deal, bringing a successful conclusion to talks that started in 2007.
The free movement of goods between countries that collectively account for around 25% of the world’s economic output has been widely described as a significant opportunity for Indian companies.
Santosh Iyer, MD & CEO Mercedes-Benz India describes the deal as an important milestone that will be remembered for decades, noting the EU is India’s largest trading partner in goods and that there are around 6000 European companies operating in India employing more than three million people directly.
“The free trade agreement will drive innovation and sustainable growth within the Indian automotive sector,” he says. “Mercedes-Benz has always advocated free trade as it brings down trade barriers and leverages mutual strengths of global economies, while benefitting the end customer.”
He explains that Mercedes-Benz has been making cars in India for 30 years, scaling up its local production each year. But with more than 90% of Indian sales volume comprising ‘Made in India, for India’ models and only 5% of sales coming via completely built unit imports from the EU, he does not foresee any price reduction for vehicles from the agreement in the foreseeable future.
Abhijeet Mallwade, Indian Merchant Exporter and Director of BH Natural FPC – a farmer-owned enterprise dedicated to promoting sustainable, residue-free farming and exporting natural produce – says the deal could reshape global trade and unlock massive opportunities.
“With a combined market of nearly two billion people, this partnership can improve market access for Indian products, strengthen supply chains and boost exports in sectors such as agriculture, textiles, pharmaceuticals, IT, manufacturing and food processing,” he says. “For Indian entrepreneurs and exporters, this is not just news; it is a signal to prepare, upgrade and scale globally.”
Having not signed a single free trade agreement between 2011 and 2021, Gudwani observes that India has now concluded or is actively engaged in free trade agreements negotiations with trading partners accounting for more than half of its trading output.
She refers to a subtle shift away from the US for select sectors such as gems and jewellery and marine products, noting apparel exports would need much more of a push towards the EU.
“India’s trade complementarity index value is the highest with the EU, indicating the agreement with the EU has the highest potential for increased intra-regional merchandise trade,” she says.
India has 17 free trade agreements and six preferential trade agreements in force, covering a wide range of sectors. Once ongoing negotiations are concluded, it will have comprehensive free trade agreement relationships with 71 countries, covering more than 75% of the country’s exports.
