India's proposed free trade agreement (FTAs) with the European Union could unlock access to a USD 875 billion market and bring tariff parity with ASEAN peers as the country navigates a critical juncture in the evolving global trade landscape, Boston Consulting Group (BCG), India-head Rahul Jain said.
Last month, India and the UK inked a landmark FTA that will cut tariffs on British whisky, cars and an array of items, besides boosting bilateral trade by around USD 34 billion annually. The FTA is expected to benefit 99 per cent Indian exports from tariff.
"The global trade environment is undergoing a structural transformation where geopolitics and economic nationalism are becoming as important as cost-efficiency and comparative advantage. Trade today is increasingly influenced by preferential access for partner nations, punitive tariffs and sanctions for adversaries and incentives that are rewiring supply chains to boost domestic production in strategic sectors," he told PTI.
The traditional 'just-in-time' supply chain model is giving way to a 'just-in-case' approach, driven by vulnerabilities exposed during the pandemic and ongoing geopolitical tensions.
India is uniquely positioned to benefit from this realignment, leveraging its strategic location, large domestic consumption base, favourable demographics and workforce and policy push towards manufacturing and technology-driven growth, he said, adding, this advantage becomes even more significant with the recent announcement from the United States to levy 50 per cent tariffs on most Indian exports.
The preferential access to the UK and potentially the EU could provide new growth markets, particularly for labour-intensive sectors, offering a valuable buffer against rising US protectionism, he said.
"The growing adoption of the China+1 strategy gives India a prime opportunity to compete effectively with China and Association of Southeast Asian Nations (ASEAN) in emerging sectors such as semiconductors, electronics, and rare earth minerals," he said.
To capture this opportunity, India must secure access to critical raw materials, strengthen domestic capabilities through global partnerships and localized R&D, accelerate FTAs with key markets and build state-level infrastructure readiness to attract foreign investment.
He emphasised that India's recent FTA with the UK provides duty-free access for 99 per cent of tariff lines and opens up a combined market which currently imports nearly USD 98 billion from China and USD 33 billing from ASEAN, while an agreement under negotiation with the EU could open a combined market that currently imports nearly USD 570 billion from China and USD 175 billion from ASEAN.
"This creates a rare window for India to compete on tariff parity with ASEAN peers and gain a pricing edge over China," he said.
While ASEAN countries have made faster gains in attracting China+1 investments due to lower labour costs, simpler regulations and broader FTA coverage, he said, adding that India's improving infrastructure, policy reforms and vast domestic market provide a unique foundation for long-term growth.
However, success will require Indian exporters to invest in improving product quality and meeting stricter environmental standards, especially under mechanisms like the EU's Carbon Border Adjustment Mechanism (CBAM).
Jain pointed out that CBAM would make carbon-intensive exports, particularly steel and aluminium, more expensive unless rapid decarbonization occurs, requiring heavy investments in cleaner technology and renewable energy.
Observing that India's Production Linked Incentive (PLI) schemes have played a key role in attracting over USD 20.3 billion in investments since 2020, he said, it has resulted in USD 191 billion in domestic production and nearly one million jobs.
Success stories include pharmaceuticals, electronics, white goods and solar PV manufacturing, with India now producing around 20 per cent of global iPhones in FY25, aiming for 32 per cent by 2026-27, he said.
"With global supply chains being rewired and trade blocs reshaping, India is at an inflection point. Strategic FTAs, targeted domestic capability-building and rapid adaptation to sustainability standards can position India as a globally competitive manufacturing and technology powerhouse," he said.
Source Name : Economic Times