Textile sector set for major gains under new EU-India trade deal

After almost 20 years of intermittent negotiations, the free trade agreement (FTA) between the European Union (EU) and India has been finalised.

On January 27, 2026, in New Delhi, European Commission president Ursula von der Leyen, president of the European Council António Costa and Indian Prime Minister Narendra Modi sealed what observers are calling the “mother of all trade deals”. The economic and geopolitical scope of the text extends far beyond a simple tariff reduction.

The agreement aims to structure a trade corridor between two blocs that represent nearly two billion consumers and about a quarter of the world's GDP. This comes amid increasing fragmentation of international trade, as noted during the official announcement.

Established but structurally imbalanced commercial relationship

Even before the signing, trade between the EU and India was substantial yet deeply asymmetrical. In 2024, trade in goods reached approximately 120 billion euros, while services accounted for nearly 60 billion euros.

For New Delhi, the EU is its largest trading partner. However, India accounts for only about two percent of the EU's total trade in goods. This new treaty aims to correct this structural imbalance, which was previously hampered by a significant tariff disparity. Average duties applied by the EU were around 3.8 percent, while India imposed duties of nearly 9.3 percent, with dramatic peaks in the automotive, chemical and textile sectors.

Customs duties: economic heart of the treaty

The reduction of these duties is the economic backbone of the treaty. India has committed to dismantling or reducing tariff barriers on over 90 percent of European exports. This measure could result in annual savings of up to four billion euros for EU companies.

Duties on European vehicles, previously over 100 percent, will be gradually reduced to around 10 percent under certain conditions. This marks a turning point for premium manufacturers. Machinery, industrial equipment, chemical and pharmaceutical products, and wines will also benefit from massive reductions or the total elimination of taxes, enhancing the appeal of the Indian market for European manufacturers.

Textiles: primary winner of the agreement

The agreement could have its most significant structural effects in the textile sector in the medium term. India is a key player in the global apparel industry but remains underrepresented in the European market.

According to a note from Jefferies published in late January, the EU imports over 125 billion dollars worth of textiles and apparel annually. This market is currently dominated by China, which holds a 30 percent share, while India captures only five to six percent.

The elimination of European customs duties, previously between 10 percent and 16 percent, comes at a crucial moment. Indian textile exporters face customs duties of up to 50 percent in the US, which increases the appeal of the European market as a priority outlet. For European brands and distributors, this development could accelerate supplier diversification and stabilise costs amid global supply chain volatility.

Impact on European textile value chain

For the European textile value chain, the agreement sets in motion several dynamics:

• A gradual shift in sourcing away from China amid trade tensions and regulatory pressure.

• An upscaling of supplies, as India has recognised expertise in cotton, spinning and weaving.

• An opportunity for partial reshoring to Europe of high-value-added stages such as design and quality control.

• A reduction in reputational risk due to India's more transparent regulatory frameworks for European clients.

In the long term, this dynamic could establish India as a credible industrial alternative to China while restoring Europe's central role in the design and valuation of textile products.

Modest gains for automotive and aeronautics sectors

Conversely, some European industrial sectors may see more gradual benefits. In the automotive industry, the reduction in Indian duties opens new prospects, though the real impact should be viewed with caution. A large portion of premium European vehicles already enter India as locally assembled kits, limiting the immediate effect of liberalisation. In aeronautics, the reduction of duties on aircraft and spare parts could lower costs, although the net effect is partially offset by India's domestic taxation.

Areas of friction remain

The agreement does not resolve all points of tension. Non-tariff barriers, particularly the European carbon border adjustment mechanism (CBAM), remain a major concern for Indian exporters. Certain sensitive areas, such as agriculture and some digital services, remain outside the immediate scope of the treaty. Ratification by national parliaments and the European Parliament could still take several months.

New momentum for European value chains

On a macroeconomic scale, the EU-India agreement is part of a broader restructuring of global value chains. It offers Europe a credible alternative to its concentrated dependence on Asia, while enabling India to advance its industrial capabilities and capture more value in developed markets.

For the European textile industry, this is a lever for rebuilding a more resilient, diversified chain aligned with the continent's social and environmental requirements.