The opportunity lies in the scale of European demand. The EU imports roughly USD 260 billion in textiles and apparel and over USD 100 billion in leather and footwear annually. Yet India exports only about USD 7 billion in textiles and USD 2.37 billion in leather and footwear to the EU, giving it a modest 2–3% share in these markets. Across the broader labour-intensive basket, exports total around USD 33–35 billion, well below potential.

 

Despite this, the EU is India’s most important destination in several of these sectors, accounting for 35–40% of apparel exports and over 40% of leather and footwear shipments. These industries have sustained growth in Europe even while facing tariffs of up to 12%, underscoring the scope for expansion once those barriers are removed.

 

The FTA completely reshapes the tariff regime. Earlier, Indian garments faced EU duties of 11–12%, footwear and leather goods up to 17%, and most other labour intensive exports such as marine products, toys and sports goods paid 4–13% at the border. Now the EU will cut duties to zero, immediately or in phases, on over 70% of tariff lines covering about 90% of India’s exports, including virtually all major labour intensive sectors from textiles and leather to sports goods and gems. This removes India’s long standing tariff disadvantage vis à vis Bangladesh’s LDC preferences, Vietnam’s FTA access and Turkey’s customs union, and pushes competition onto design, delivery speed, quality and ESG compliance rather than basic price gaps.

 

The simple tariff-impact estimates suggest an immediate export boost of roughly 15% across labour-intensive sectors once EU duties fall to zero, raising shipments from about USD 33 billion to nearly USD 38 billion in the first year. The strongest proportional gains are in leather and footwear, where tariffs of up to 17% are eliminated, lifting exports from USD 2.4 billion to nearly USD 3 billion. Textiles and apparel could rise from around USD 7 billion to USD 8–9 billion initially, while lower-tariff sectors such as gems and marine products see more modest increases. These first-round gains reflect price effects alone. Sustaining momentum toward more ambitious targets, USD 40 billion in textiles, USD 4–6 billion in leather and footwear, and an overall 80–90% expansion in EU-bound exports, will depend on capacity expansion, ESG compliance and cluster modernisation. Given that textiles alone employ about 45 million people, even incremental export growth can translate directly into factory hiring, reinforcing India’s comparative advantage in labour-intensive manufacturing.

 

 

Source: Tariff impact estimates based on the authors’ calculations

(Note: Projections represent indicative first-year effects following tariff elimination to zero under India-EU FTA)

 

The FTA is therefore both an opportunity and a sorting mechanism. It can help push India’s labour intensive exporters up the value chain, away from low margin, price led competition towards more design rich, sustainable and value added manufacturing. At the same time, India’s own tariff cuts will expose domestic MSMEs to greater competition from European producers in segments ranging from garments and footwear to machinery, creating a dual effect in which cheaper access to high end European machinery can raise productivity, but smaller low margin firms may face sharper price pressure unless they quickly improve efficiency and scale. The net impact can be strongly positive, but only if accompanied by smart adjustment support, productivity enhancing policies and carefully designed local value addition strategies that ensure MSMEs, not just a few large export houses, can capture the gains.

 

Zero duty access to a vast, high income market, tariff parity with major competitors and the prospect of millions of new jobs represent a powerful opening for India’s labour intensive sectors. Yet market access on paper is not the same as transformation in practice; success will hinge on complementary domestic reforms in green infrastructure, institutional support and targeted MSME assistance that allow firms across the size spectrum to upgrade and compete. If these pieces come together, India’s labour intensive manufacturing can enter a more resilient, job rich phase of global integration; if they do not, the benefits of the India–EU FTA risk remaining concentrated among larger, better capitalised firms, leaving smaller enterprises struggling to keep pace.