India-EU trade deal faces new challenge from carbon lobby, non-tariff barriers: Jefferies

India and the European Union move closer to finalising a long-pending Free Trade Agreement (FTA), but significant challenges remain in the form of non-tariff barriers, particularly the European Union’s upcoming Carbon Border Adjustment Mechanism (CBAM), according to a report by Jefferies.

The brokerage said India’s primary concern lies in the EU’s extensive use of non-tariff measures, with limited room for concessions. CBAM, which seeks to impose a carbon price on imports to match domestic EU producers, could weigh heavily on Indian exports going forward.

“Key concern for India is the many non-tariff barriers, such as the upcoming CBAM mechanism for its exports. We see a limited scope of relaxation here,” Jefferies said.
CBAM is designed to prevent “carbon leakage” by ensuring that imported goods face the same carbon costs as those produced within the EU, a move that could raise compliance costs for exporters from carbon-intensive economies such as India.

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According to the report, India is expected to push for greater access in services trade, including smoother movement of professionals and easier visa norms for its young workforce, particularly in technology and healthcare. The EU, on the other hand, is likely to seek deeper access to India’s financial, legal, and other services sectors.

As with India’s recently concluded FTA with the UK, politically sensitive sectors such as agriculture and dairy are expected to remain largely outside the scope of the India–EU deal.

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Jefferies noted that negotiations between India and the EU began in 2007 but stalled by 2013 due to complexity and lack of consensus. Talks regained momentum in 2022, and broad agreement on excluding sensitive sectors on both sides has raised expectations of a deal being finalised in the coming days.

In terms of trade size, India’s annual goods trade with the EU stands at around $130 billion, comparable to its trade with the United States and China. India’s exports to the EU are estimated at $75 billion annually, accounting for about 17% of total exports.

Since 2022, India has also recorded an annualised goods trade surplus of $10–15 billion with the EU, driven by higher petroleum product exports following the Russia–Ukraine war and a surge in electronics exports, particularly mobile phones.
On the sectoral front, Jefferies highlighted textiles and apparel as a potential beneficiary.

The EU imports nearly $125 billion worth of textiles annually, where India currently holds a 5–6% share, compared with China’s 30%. An FTA could help Indian exporters gain parity with South Asian competitors, especially as higher US tariffs have hit the sector.