In an interview with CNBC-TV18, Dasgupta mentioned that the EU’s withdrawal of Generalised Scheme of Preferences (GSP) benefits would affect almost 87% of India’s exports to the EU, despite the government’s assertion that this change won’t have an immediate impact. He argued that increased tariffs would directly hike costs for Indian exporters, diminishing their competitive edge in the EU market.
“This will certainly hurt exports; for textiles and clothing, for example, if tariffs revert to 12%, we won’t be able to compete with Bangladesh and Vietnam, who have zero-duty access,” Dasgupta remarked, noting the likely challenges Indian exporters will encounter in key sectors.
The EU’s updated GSP regulations, effective from January 1 and lasting two years, revoke tariff preferences for countries whose exports of certain items exceed a defined competitiveness threshold for three consecutive years. According to Dasgupta, this decision is unrelated to the timing of India-EU free trade agreement (FTA) discussions but arises from the EU’s regulatory framework.
“As per the EU’s latest guidelines, if a country’s exports of specific commodities surpass a threshold for three consecutive years, that country must graduate for those products, leading to the withdrawal of GSP benefits,” he explained.
He observed that Indian exports have indeed exceeded this threshold for numerous products, reflecting their competitiveness but also resulting in the loss of tariff advantages. On average, GSP benefits constitute around 4.5% of the EU’s applied tariffs. In sectors like textiles, where tariffs hover around 12%, the loss of preferential status translates into a significant increase in costs.
Sectors such as textiles and clothing, chemicals, plastics, iron and steel, electrical machinery, and minerals account for roughly 87% of India’s exports to the EU. Dasgupta noted that out of India’s approximately $76 billion in exports to the bloc last year, about $63-64 billion would no longer benefit from the average GSP tariff reductions. The remaining 13%, including certain agricultural products, leather goods, and handicrafts, will continue to receive preferential treatment and remain unaffected.
The Commerce Ministry indicated that the EU’s action continues an existing system, noting that GSP tariff preferences have been gradually phased out since 2016. However, trade researchers, such as the Global Trade Research Initiative, have pointed out the potential for higher tariffs to adversely affect export-heavy sectors, particularly textiles, chemicals, and plastics.
This situation coincides with a high-level EU delegation visit to India, led by European Commission President Ursula von der Leyen and EU Council President Antonio Costa, to finalize discussions on a long-pending free trade agreement. Dasgupta remarked that the proposed FTA, often referred to as the “mother of all deals,” might help mitigate the loss of GSP benefits over time, although it will not provide zero-duty access for Indian exports.
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Dasgupta noted that Indian exports to the EU currently face an average tariff of about 3.9%. While this is not expected to drop to zero, it is likely to decrease considerably,” he mentioned.
He added that although the agreement is anticipated to be signed soon, it might take approximately a year post-signing for the deal to be enacted and ratified. Once effective, the FTA is expected to reduce tariffs on most goods, excluding certain agricultural and dairy products from the EU side.
According to Dasgupta, the volume of trade involved underscores why this agreement is viewed as so crucial. The EU–India trade in goods and services amounts to around $208 billion, exceeding India’s bilateral trade with both the United States and China, which makes this pact potentially transformative for businesses on both sides.
Watch accompanying video for entire conversation.
