The conclusion of the India-European Union Free Trade Agreement (FTA) marks a significant strategic shift for Indian agriculture and allied industries, positioning them to move up the value chain in one of the world's largest and most regulated markets. The agreement, announced at the 16th India-EU Summit, offers a comprehensive framework encompassing goods, services, and investment.
For the agriculture and agri-inputs sector, the primary benefits are expected to be higher-value exports, improved regulatory alignment, and greater long-term business predictability rather than a simple volume expansion.
The European Union (EU), a 27-member bloc with an estimated gross domestic product (GDP) of USD 21.1 trillion in 2025, represents a sophisticated and high-value import destination. Bilateral goods trade between India and the EU reached USD 136.5 billion in the 2024-25 financial year (FY2025), making the bloc India's largest goods trading partner.
However, after a robust post-pandemic recovery, growth in this trade has stagnated, with exports and imports plateauing for three consecutive years. This stagnation underscores the strategic need for a comprehensive trade framework like the FTA to reignite momentum and unlock new growth avenues.
India has long protected its agriculture sector, which is rooted in its political sensitivity and structural vulnerabilities rather than pure trade protectionism. Agriculture supports a large share of India’s population through small and marginal farmers, fragmented landholdings and price-sensitive supply chains, making it deeply intertwined with rural livelihoods and electoral stability.
Greater market access for foreign agricultural products, particularly from highly subsidised and industrial-scale producers, raises concerns over price volatility, farmer incomes and food security. This sensitivity was a key stumbling block in India-US trade negotiations, where Washington pushed for wider access to India’s agri market, while the PM Modi-led government remained reluctant to do so.
Decoding The Strategic Benefits
For sectors such as agrochemicals, crop protection products, and speciality chemicals, the EU FTA provides a crucial pathway into a market governed by stringent regulatory and quality standards. This access is pivotal for moving from commodity exports to higher-margin, value-added products.
"The proposed India-EU Free Trade Agreement is a structurally positive development for Indian manufacturing and a long-term value catalyst for investors," said Rajesh Aggarwal, Managing Director, Insecticides (India) Limited and Vice-chairman, Crop Care Federation of India. "For the agri-inputs sector, improved access to the EU's regulated and high-value markets can significantly enhance export opportunities, while gradual tariff rationalisation and regulatory alignment can improve cost competitiveness."
The agreement is expected to materially shorten product registration timelines and widen market access for companies with an existing presence in Europe. This, in turn, can support a shift towards a higher-value export mix, better capacity utilisation, and sourcing efficiencies, creating potential for margin expansion and improved returns on capital deployed.
Crucially, the long-term predictability afforded by such a trade framework enables disciplined capital allocation, improved cash-flow planning, and reduced earnings volatility for businesses.
Diversifying Trade And Mitigating Risk
A key challenge for Indian exports to the EU has been high geographical concentration. Nearly 73 per cent of India's exports to the EU in FY2025 were directed to just five countries: the Netherlands, Germany, France, Italy, and Belgium. This concentration exposes Indian exporters to growth fluctuations in these major economies, some of which face subdued growth projections.
The India-EU FTA, by reducing tariffs and streamlining customs and regulatory procedures across all 27 member states, is expected to help diversify India's export footprint. It can incentivise exporters to tap into smaller, under-penetrated EU markets, thereby mitigating concentration risk and opening new growth avenues. This is particularly relevant for specialised agri-inputs and processed agricultural products that can find niche markets across the continent.
The stabilisation and growth of bilateral trade under the FTA are also expected to have a positive impact on trade finance. As trade rules become more predictable and regulatory procedures align, the risk associated with financing these transactions decreases, encouraging greater financial sector participation.
"As bilateral trade rules become more predictable under the India-EU Free Trade Agreement, we expect clear upward pressure on demand for trade credit and supply-chain financing," said Kaushal Sampat, President, Vayana. "An FTA that reduces barriers and aligns regulatory procedures will increase transaction visibility and reduce documentation risk, encouraging greater use of instruments such as letters of credit, receivables financing and supply-chain discounting."
This is especially relevant for agriculture-linked sectors where the clarity on rules and tariff relief can improve the volume and predictability of trade, subsequently unlocking working capital needs across the entire supply chain ecosystem.
Accessing the EU market requires navigating its evolving regulatory landscape, particularly its integration of trade and climate policy. The EU's Carbon Border Adjustment Mechanism (CBAM), effective from 1 January 2026, introduces a levy on the embedded greenhouse gas emissions of imported goods, including certain fertilisers and industrial inputs.
This mechanism underscores the increasing importance of compliance, traceability, and sustainable production practices for long-term market access. For Indian agri-input and chemical exporters, aligning with these standards is no longer just a competitive advantage but a necessity. The FTA framework can facilitate dialogues and processes that help the Indian industry meet these standards, turning regulatory compliance into a long-term strategic strength. |
