Creating employment: India-EU FTA can increase labour-intensive exports

The India-EU FTA offers major export and job gains for labour-intensive MSME sectors, but success will hinge on meeting EU standards and easing logistics bottlenecks

The India-European Union (EU) free-trade agreement (FTA) opens up a large opportunity for India’s labour-intensive sectors. Industries such as textiles, clothing, footwear, leather, marine products, and plantation goods stand to benefit the most because they face relatively high tariffs in the EU. Unlike capital-intensive manufacturing, these sectors are deeply employment-oriented and dominated by micro, small, and medium enterprises (MSMEs) clustered across the country. From Tiruppur’s knitwear units to leather hubs in Kanpur and Agra, and from seafood exporters along the eastern coast to plantation products in the south, the employment linkages are extensive and could help in recovering the losses incurred by higher US tariffs. In FY25, India’s exports to the EU stood at around $76 billion, a figure comparable to shipments to the US, which were about $87 billion. The EU is the largest export destination for textiles and apparel after the United States (US), with shipments from India valued at $7.2 billion. 

Market access to the EU, therefore, will benefit exports and job creation. The textile and apparel sector alone directly employs an estimated 45 million people, and improved access to the EU market could raise capacity utilisation across key MSME clusters, translating export growth into employment gains. Prior to the FTA, the EU imposed tariffs of up to 12 per cent on textiles and apparel, up to 17 per cent on leather and footwear, and as high as 26 per cent on marine products; these duties will now be eliminated. The higher tariff structure has historically eroded India’s competitiveness in Europe, particularly in the face of Asian rivals with preferential access. In this context, tariff liberalisation under the FTA could narrow a longstanding disadvantage and allow Indian producers to compete on more equal terms, especially in price-sensitive segments. The scale of the opportunity is significant. 

However, tariffs are only one part of the story. Non-tariff barriers in the EU, including stringent product standards, traceability requirements, and sustainability norms, could pose challenges for Indian exporters, particularly MSMEs. Compliance with environmental, labour, and quality standards requires investment in technology, certification, and process upgrades, which many small firms are currently ill-equipped to make. Thus, the challenge for India is to translate this access into actual employment-intensive growth. It will be important to push domestic reforms. Investment in infrastructure for product compliance, like testing labs, certification facilities, and quality control systems, will be critical. Lowering logistics costs through better management at ports, faster Customs procedures, and improved connectivity will also be key to making Indian exports competitive in a demanding market like the EU. Equally important is aligning skilling and training programmes with export requirements. Labour-intensive sectors cannot scale up sustainably unless workers are trained to meet global standards in quality, safety, and environmental practices. Without such alignment, the FTA may benefit a limited set of large exporters while leaving smaller firms behind.