After 18 years of negotiations, India and the European Union have finalized a Free Trade Agreement (FTA), set to be formally announced on January 27, 2026. For chemical buyers and suppliers, the deal promises lower tariffs on EU imports into India and expanded access for Indian chemicals into the EU, but also introduces new compliance costs under the EU's Carbon Border Adjustment Mechanism (CBAM) and heightened competition for domestic producers.
Tariff reductions and market access
India's average tariff of 9.3% on EU goods will drop, making EU chemicals, machinery, and plastics cheaper in the Indian market. Conversely, the EU's average tariff of 3.8% on Indian goods—higher for some categories—will be reduced or eliminated, boosting Indian exports of organic chemicals, specialty chemicals, and generics. Bilateral goods and services trade reached approximately $136–190 billion in 2024–25, with India exporting about $75–76 billion in goods to the EU.
Export growth projections for Indian chemicals
Industry experts project Indian chemical exports to the EU could double within three years, driven by phased tariff reductions and improved regulatory alignment. Similar duty concessions in recent deals, such as the India-UK FTA, have been shown to increase chemical exports by 30–40% in the short term. The pharmaceuticals sub-sector, closely linked to chemicals, will benefit from easier access for generics and specialty items, potentially offsetting lost preferential tariffs under the EU's former Generalized System of Preferences (GSP) scheme.
Competition and compliance challenges
Tariff reductions will also make EU chemicals, machinery, and plastics more competitive in India, potentially flooding the market and pressuring local manufacturers. The EU's new Carbon Border Adjustment Mechanism (CBAM) imposes a 20–35% tax on high-emission exports like steel, aluminum, and chemicals, threatening to slash Indian manufacturing competitiveness. This climate-linked levy could cause a drop of up to 10% in some export sectors, with SMEs facing particular difficulty meeting strict EU standards.
What buyers should watch
Importers and distributors should monitor the phased rollout of tariff reductions and the timeline for CBAM compliance. Gains from the FTA may phase in slowly, while import competition could hit quickly, causing temporary market disruptions. Non-tariff barriers, such as regulatory delays and certifications, may persist and underdeliver on export promises. The deal's ratification by the European Parliament may take up to a year, introducing further uncertainty for supply-chain planning.
China sourcing context
While the India-EU FTA strengthens India's position as an alternative sourcing hub for chemicals and pharmaceuticals, buyers should note that Indian exporters face CBAM-related cost pressures that Chinese suppliers may not yet encounter. However, India's improved market access to the EU could shift some sourcing away from China, particularly for organic and specialty chemicals. The deal also aligns with India's "Make in India" initiative, potentially attracting European investment into Indian manufacturing hubs.
Source: Read the original report | Published: June 11, 2026