India-EU FTA: A transformational opportunity for India's textiles

The India-EU FTA grants zero-duty access across the full spectrum of textile and apparel tariff lines, thereby positioning Indian exporters on an equal footing with competitors

The conclusion of the India-European Union Free Trade Agreement (FTA) marks a significant inflexion point in India’s long-term trade and industrial strategy. After nearly two decades of negotiation, which started in June 2007, stalled in 2013, restarted in May 2021, and concluded in January 2026, putting in place an agreement that establishes a comprehensive and rules-based economic partnership between two large and complementary economies. For India, among other sectors poised to gain, textiles and apparel stand out as a clear strategic beneficiary – not only because of their potential export prospects, but also because of their key role in employment generation, regional development, and inclusive growth. The implications extend well beyond tariff liberalisation; they represent a structural reset in India’s integration with one of the world’s most urbane and sophisticated consumer markets.

 

 

As a unit, the European Union (EU) is the world's largest importer of textiles and apparel, having annual imports of pproximately $268.50 billion. India's current share of this market is approximately five per cent, which is below its underlying production capacity, design capabilities, and raw-material endowment. This gap is less attributable to supply-side constraints and more to importunate tariffs and preference disadvantages. The India-EU FTA conclusively addresses this distortion by granting zero-duty access across the full spectrum of textile and apparel tariff lines, thereby positioning Indian exporters on an equal footing with competitors that have long enjoyed preferential tariff access to the EU market.

 

Strategic importance of textiles

 

Textiles and apparel are not merely an export sector in India; they constitute a foundational pillar of the real economy. The sector employs roughly 45 million people directly, making it the second-largest source of employment after agriculture. Its value chain spans cotton farmers, fibre producers, spinners, weavers, processors, garment manufacturers, exporters, logistics providers, and critically, millions of artisans engaged in handloom and handicrafts. Few sectors combine scale, employment intensity, and cultural embeddedness in the manner that textiles do in India.

 

India's textile and apparel exports currently stand at about $36-37 billion annually. Of this, exports to the EU account for roughly $7-7.2 billion. Ready-made garments dominate the export basket, followed by cotton textiles and man-made fibre products, while handloom, handicrafts, carpets, jute, silk and woollen products together represent a smaller but strategically important segment, particularly from the standpoint of rural livelihoods and MSME participation. The FTA therefore operates across both the modern industrial segment and the traditional artisanal economy, a feature that distinguishes it from many other trade agreements.

 

Correcting structural tariff disadvantage

 

Before the FTA, Indian textile and apparel exports to the EU were subject to MFN tariffs of up to 12 per cent. While seemingly modest, these tariffs had a disproportionate impact in a sector characterised by thin margins and intense price competition. Competing exporters like Bangladesh, Vietnam, Pakistan, and Turkey benefited from preferential or zero-duty access, allowing them to capture a significantly larger share of EU imports. Bangladesh alone exports close to $30 billion worth of apparel to the EU annually, underscoring the magnitude of the competitive imbalance India faced.

 

The India-EU FTA eliminates this disadvantage in one stroke. Zero-duty access from the first day of implementation restores price competitiveness, improves margin realisation, and enhances the ability of Indian firms to negotiate long-term supply contracts with European buyers. From a macroeconomic perspective, this is not merely a trade concession; it is a reallocation of market access that better reflects India’s true comparative advantage in textiles.

 

Export expansion and market re-positioning

 

India’s textile and apparel, including handicraft exports to the EU, stood at $7.6 billion in 2024-25. Germany, the Netherlands, Spain, France, and Italy are the five major export destinations of India’s textiles exports in the EU, accounting for 18.7 per cent, 15.8 per cent, 13 per cent, 12.8 per cent, and 10.4 per cent, respectively. That means 70 per cent of India’s textile apparel exports go to these five countries only. Czech Republic, Slovenia, Austria, Hungary, Finland, Croatia, Slovak Republic, Bulgaria, Lithuania, Latvia, Cyprus, Estonia, Malta, and Luxembourg remain the unexplored countries which account for 0.8 per cent to 0.01 per cent of India’s exports of textile apparel. This gives the sense that these countries have great export opportunities for Indian exporters.

 

The removal of tariffs opens up a substantial growth corridor for Indian exports. Conservative estimates indicate that textile and apparel exports to the EU could grow at 15-20 per cent annually in the initial years following implementation, potentially doubling within three to four years. Over a longer horizon, industry projections indicate that India’s total textile and apparel exports could reach $100 billion by 2030, with Europe emerging as a principal growth engine.

 

Implications for handloom and handicrafts

 

One of the most economically and socially weighty features of the FTA is its likely impact on handloom and handicrafts. These segments, though smaller in export value, are deeply labour-intensive, employment-generative and geographically dispersed across rural and semi-urban India. Products such as handwoven fabrics, embroidered garments, carpets, shawls, jute handicrafts and traditional silk enjoy strong cultural resonance in European markets, particularly among consumers who value authenticity, sustainability and ethical sourcing.

 

Zero-duty access enhances price realisation for artisans and MSME exporters, many of whom formerly absorbed tariff costs or priced themselves out of the market. More notably, the agreement improves predictability of demand, inspiring exporters and cooperatives to invest in design development, quality improvement and certification. As European buyers are increasingly inclined towards traceable and responsibly produced goods, India’s handloom and handicraft sectors – anchored in low-carbon, craft-based production – are uniquely positioned to respond.

 

Employment, regional development and gender Inclusion

 

The expansion of textile exports under the FTA is projected to have substantial multiplier effects. Higher export volumes will translate into better capacity utilisation across spinning, weaving, processing, and garmenting hubs such as Tiruppur, Surat, Ahmedabad, Panipat, and Bengaluru. This, in turn, enhances job creation, especially for women, who comprise a substantial share of the workforce in garment manufacturing and artisanal clusters.

 

From a regional development perspective, export-led growth in textiles has historically spawned spillovers in infrastructure, skills and ancillary industries. The FTA reinforces this dynamic by creating sustained demand signals, reducing unpredictability, and promoting long-term investment. For states with a strong textile base, the agreement offers a pathway to inclusive industrialisation anchored in comparative advantage.

 

Risk diversification in fragmenting trade environment

 

The geopolitical context further amplifies the importance of the India-EU FTA. Today, global trade is largely and increasingly shaped by protectionism, supply-chain reconfiguration and strategic competition. Indian textile exporters have lately faced heightened tariff and non-tariff barriers in certain traditional markets, underlining the risks of disproportionate market concentration. Increased access to the EU provides a critical hedge against such volatility. From the EU's perspective, India offers large-scale, much-needed democratic stability and supply-chain resilience - attributes that have gained prominence in post-pandemic trade policy.

 

In a nutshell, the India-EU FTA represents far more than a conventional tariff-cutting exercise. For the textiles, apparel, handloom and handicrafts sector, it is a structural opportunity to amend long-standing distortions, enlarge market share, and reposition India within global value chains.

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The writer is Rajinder Kumar, Economic Advisor, Ministry of Textiles  (Disclaimer: These are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper)