India-EU FTA: MSMEs Need to Prepare for Non-Tariff Requirements to Access European Markets
Government highlights ESG, CBAM, certification, labour and deforestation rules as key compliance areas ahead of expected 2027 implementation
Indian micro, small and medium enterprises (MSMEs) will need to prepare for European Union (EU) environmental, certification and other non-tariff requirements to fully benefit from the India-EU free trade agreement (FTA), a senior government official said. The agreement is expected to become operational in the January-March quarter of 2027, subject to completion of the requisite approval processes.
Lower tariffs alone may not lead to higher exports unless Indian businesses can comply with requirements covering environmental, social and governance (ESG) standards, the Carbon Border Adjustment Mechanism (CBAM), certification, child labour and deforestation, said Sanjeev Chawla, additional development commissioner, MSME Development and Facilitation Office, Karnal, Ministry of Micro, Small and Medium Enterprises.
MSMEs urged to understand EU requirements
“Indian goods going to Europe face a lot of rules,” Chawla said, stressing that MSMEs need to understand the requirements before the FTA becomes operational.
He was speaking at a two-day international conference on “India-EU Partnership for MSME Competitiveness, Sustainability & Global Value Chains”, organised by the Federation of Indian Micro and Small & Medium Enterprises (FISME).
Chawla said industry associations and export promotion councils would need to play a larger role in helping MSMEs understand the EU’s complex requirements, as individual small businesses may not have the capacity to interpret and comply with them.
Implementation could determine use of FTA benefits
Sangeeta Khorana, professor of international trade policy at Aston Business School, UK, also highlighted the implementation challenge.
According to Khorana, Indian firms have historically utilised only 20-30 per cent of available FTA tariff preferences.
“Negotiation is not an outcome. It’s the implementation which will be the outcome,” Khorana said.
She added that MSMEs would need to work with industry associations and the government to build the capacity required to use tariff preferences and participate in European value chains.
EU regulations continue to evolve
Kate Foster, international affairs and trade policy lead at the Federation of Small Businesses (FSB), UK, said an FTA could provide greater stability and certainty for small businesses.
However, she noted that exporters would need to account for compliance requirements across the EU’s 27 member states.
Foster also said EU regulations were evolving in areas including sustainability, supply-chain transparency and due diligence, requiring exporters to continually adapt to regulatory changes.
Apparel and leather among market opportunities
The agreement could provide significant market opportunities for Indian exporters, particularly in apparel and leather, said Carmine Soprano, economist at Tor Vergata University of Rome and visiting senior fellow at the London School of Economics and Political Science.
The EU imports around €80 billion of garments and apparel annually, but India accounts for only around 6 per cent of these imports, compared with 17 per cent from Bangladesh, Soprano said.
India’s share of EU leather imports is also around 6 per cent, compared with 23 per cent for Vietnam.
According to Soprano, the FTA could help address the competitive disadvantage faced by India following the phase-out of the EU’s Generalised System of Preferences for India.
Services also covered under the agreement
Chawla highlighted opportunities for Indian businesses in services, noting that the India-EU agreement covers around 144 services sectors and sub-sectors.
He said higher services exports could be particularly beneficial because they have lower import dependence compared with merchandise exports.
Export Promotion Mission to support MSMEs
The government is also preparing MSMEs through the Export Promotion Mission, which includes 11 schemes focused on MSMEs, first-time exporters and labour-intensive sectors.
Chawla said these schemes provide support in areas including export credit, overseas warehousing, logistics, branding and capacity building.
The focus, he said, should now be on ensuring that MSMEs are prepared to meet EU requirements and can convert the tariff preferences under the FTA into actual export orders.