India–EU FTA: A $27 Trillion Trade Door Opens for Indian MSMEs
The India–European Union Free Trade Agreement (FTA) marks one of the largest economic milestones India has entered in recent decades. The scale is hard to ignore. India and the EU already conduct more than €120 billion in annual goods trade, and this agreement expands tariff liberalisation across over 96 percent of traded goods.
This eventually sets a combined market of nearly $27 trillion and about 25 percent of the global gross domestic product (GDP).
It sets a trade corridor linking two major economic blocs and nearly 2 billion people, embedding India deeper into global value chains at a time when trade relationships worldwide are being uncertain.
It's a time where India is reshaping its role in global commerce, accelerating export-driven MSME growth, and expanding the long-term opportunities for trade-linked credit and capital formation.
Why this deal is happening now?
Tariff escalations, supply chain disruptions, and geopolitical risk have pushed Western economies to reduce dependence on concentrated manufacturing hubs. Trump-era tariff actions accelerated this recalibration. That momentum has not reversed.
Europe’s renewed trade engagement with India reflects a strategic priority. India offers manufacturing scale, cost competitiveness, regulatory depth, political alignment, and a growing industrial ecosystem.
The FTA formalises India’s position as a preferred supply chain partner at a time when economic resilience and diversification have become strategic imperatives.
The EU projects that its exports to India could further double by 2032, driven by tariff elimination, improved market access, and stronger commercial integration. We can also look forward to reduced trade friction across industrial goods, consumer products, chemicals, pharmaceuticals, and labour-intensive sectors.
Tariff elimination and measurable economic upside
The agreement carries tangible financial impact. European exporters are expected to save up to €4 billion annually in tariff duties, creating room for price reductions, margin expansion, and increased trade volumes.
India benefits from reciprocal tariff relief across nearly 99% of its export lines to the EU, strengthening competitiveness in sectors that have historically faced cost disadvantages.
Sectors such as textiles, apparel, footwear, leather, gems and jewellery, fisheries, handicrafts, and chemicals stand to see direct export uplift. Indian textile exports to the EU, for instance, have faced 12–16% tariffs, while competing exporters from other countries have enjoyed preferential or zero-duty access. Closing this gap materially improves price competitiveness and export viability, particularly for labour-intensive clusters in Tirupur, Maharashtra, Surat, Kanpur, and Ludhiana.
In gems and jewellery, bilateral trade already exceeds $5 billion, with projections pointing toward $10 billion within the next few years following duty elimination. These numbers reflect a concrete shift in margin economics, buyer demand, and supply chain routing.
MSMEs at the centre of export expansion
The most consequential impact of this agreement lies in MSMEs. India has more than 63 million MSMEs, employing over 110 million people. Yet only a small fraction participates meaningfully in exports today. The EU represents a 450+ million high-income consumer market with growing demand for sustainable, design-driven, and ethically produced goods. The FTA lowers entry barriers for Indian MSMEs across multiple categories.
Labour-intensive MSME segments such as handicrafts, leather goods, apparel, footwear, home décor, marine products, and lifestyle exports stand to benefit from zero-duty access and improved regulatory alignment. Export diversification improves revenue stability, reduces dependence on domestic demand cycles, and strengthens long-term business resilience.
Market access alone does not drive scale. MSMEs that succeed will be those with access to working capital, trade finance, logistics infrastructure, compliance capabilities, and predictable buyer relationships. Export growth requires capital readiness alongside commercial opportunity.
Trade as a credit growth engine
Bilateral trade expansion translates directly into increased demand for working capital, invoice discounting, supply chain finance, export credit, and structured trade instruments. As MSMEs integrate into formal export ecosystems, their transaction flows become more visible, traceable, and financeable.
Trade-linked cash flows offer lenders stronger risk signals than traditional balance-sheet lending models. Export receivables, confirmed purchase orders, and supply chain data enable more precise underwriting, lower default risk, and faster credit decisions. As export volumes scale, this agreement can unlock a meaningful expansion in India’s SME lending market, particularly in export-oriented clusters.
India’s SME credit gap remains estimated at hundreds of billions of dollars. Trade-backed financing represents one of the most credible pathways to closing that gap.
Sustainability and compliance: A new operating standard
The EU’s environmental and sustainability requirements introduce a higher compliance threshold for exporters. Mechanisms such as the Carbon Border Adjustment Mechanism (CBAM) will impose additional reporting and emissions-tracking obligations in sectors including steel, aluminium, cement, and chemicals.
Exporters that invest early in traceability, sustainability reporting, emissions measurement, and responsible sourcing are more likely to secure long-term buyer contracts, premium pricing, and stronger procurement standing.
Further we see EU’s €500 million commitment that gives India the financial leverage to modernise manufacturing, meet tougher sustainability standards, and build stronger trust with global buyers.
Execution risk: Access does not guarantee outcomes
Many MSMEs remain constrained by limited export readiness, fragmented logistics, uneven access to finance, regulatory complexity, and limited global buyer exposure. Without financial enablement and ecosystem support, export benefits risk skewing toward larger enterprises.
Recent trade disruptions illustrate this vulnerability. Shifts in tariff policy and global demand have triggered measurable volatility in India’s export flows over the past few years. Export-led growth requires not only policy access, but also credit availability, tech infrastructure, banking inclusion, export facilitation, and institutional execution.
Financial infrastructure plays a critical role in ensuring that trade opportunity reaches smaller suppliers rather than remaining concentrated among large exporters.
India’s evolving position in global commerce
India’s trade model is shifting from transactional exports toward embedded participation in global supply chains. This agreement strengthens India’s credibility as a long-term sourcing destination, manufacturing base, and value-added export economy.
The FTA also reinforces India’s role within a broader multi-polar global trade structure, where companies diversify sourcing across multiple regions to mitigate geopolitical and supply risks. As additional trade corridors mature across Asia, the Middle East, and Africa, India’s leverage in shaping global trade networks is likely to expand.
Trade growth under this agreement will not only influence export volumes. It will shape industrial investment, MSME scaling, employment, logistics expansion, financial services demand, and long-term capital formation.
The real test: Speed of execution
The success of this agreement will depend on how quickly Indian businesses expand export capacity, how effectively lenders support trade-linked financing, and how decisively policymakers align financial infrastructure with export ambition.
India has secured a meaningful opening in one of the world’s largest consumer and industrial markets. Capturing the full upside requires fast execution, disciplined capital deployment, export-ready MSMEs, and modern credit systems built around real transaction data.
Think Working Capital… Think CredAble!