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From January 1, 2026, India faces a major setback in the EU market, as 87 per cent of its exports begin paying higher import tariffs following the EU's suspension of Generalised Scheme of Preferences (GSP) benefits. These GSP concessions previously allowed Indian products to ship at less than Most Favoured Nation (MFN) tariffs to EU markets. Now, however, concessions are suspended for 87 per cent of the value of Indian goods to the EU, forcing exporters to pay full MFN tariffs.
Technically, under GSP, exporters received a "margin of preference"--a percentage reduction in the EU's MFN tariff--which averaged about 20 per cent for most textiles, garments, and industrial goods. For example, an apparel product facing a 12 per cent MFN tariff paid only 9.6 per cent under GSP, but as of this month, that benefit has ended, and exporters must pay the full 12 per cent duty. The impact of this withdrawal is widespread across almost all major industrial sectors that form the backbone of India's exports to Europe, including minerals, chemicals, plastics, textiles, iron, steel, machinery, and electrical goods. GSP benefits now remain only for a limited group of products--such as agriculture, leather goods, and handicrafts--which account for less than 13 per cent of India's exports to the EU. The EU's move follows its "graduation" rules, under which preferences are withdrawn once exports in a specific product group cross a certain threshold for three consecutive years. Accordingly, India has been graduated for the 2026-2028 period under a regulation adopted in September 2025. GTRI report acknowledges the move is legally justified, it notes that "the economic impact is sharp: most Indian exports lose preferential access overnight". This loss of preference comes at a particularly difficult time for Indian trade. While there is optimism over the conclusion of the India-EU Free Trade Agreement (FTA), the report warns that "the loss of GSP preferences coincides with the start of the tax phase of the EU's Carbon Border Adjustment Mechanism (CBAM)". The GTRI describes the current situation as a "double hit--higher tariffs from GSP withdrawal and higher non-tariff costs under CBAM". Indian steel and aluminium exporters are already facing rising carbon reporting and compliance costs, with a real risk of being charged inflated default emissions as the CBAM entered its definitive phase on January 1, 2026. The combination of these factors is expected to hit margins directly and weaken India's competitiveness against other global suppliers. In highly price-sensitive sectors like garments, the tariff increase is already enough to "push EU buyers towards duty-free suppliers like Bangladesh and Vietnam". Because the implementation of the India-EU FTA is likely to take at least a year or longer, Indian exporters must absorb full MFN tariffs in the interim, which will squeeze already thin margins. As the global trade environment remains fragile, the GTRI concludes that "2026 is likely to be one of the toughest years for Indian exports to Europe in more than a decade". (ANI)
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