The European Union has suspended tariff benefits under its Generalised Scheme of Preferences (GSP) for a wide range of Indian goods, including labour-intensive textiles and garments, a move that will subject most shipments to higher duties, effective from 1st January 2026. The suspension will remain in place until 31st December 2028 and is expected to weaken the price competitiveness of Indian exports to the 27-nation bloc.
The decision removes preferential access for nearly 87% of India’s exports to the EU, leaving only about 13% of products—mainly select agricultural and leather goods—eligible for lower tariffs. As a result, exporters will now pay full Most Favoured Nation (MFN) duties. For example, an apparel item that attracted a 9.6% duty under the GSP will now face the standard 12% tariff.
The commerce and industry ministry said the development was part of a long-running, rules-based process rather than a new action. It noted that the EU has progressively withdrawn GSP preferences for India since 2016 through a phased “graduation” of product categories as export volumes crossed prescribed thresholds. For FY ’25, nearly 47% of India’s exports to the EU, valued at US $ 35.6 billion, were already outside the GSP framework, with the remaining 53% eligible for benefits.
The Federation of Indian Export Organisations said the withdrawal had effectively eliminated an average tariff advantage of around 20%, forcing most Indian products to enter the EU at full MFN rates. It added that this would erode competitiveness, particularly against countries such as Bangladesh and Vietnam that continue to enjoy preferential access, particularly in the realm of garments.
Trade policy analysts at the Global Trade Research Initiative said the affected sectors form the backbone of India’s export basket, which include textiles and garments. While the suspension is legally consistent with EU graduation rules, the think tank said the economic impact would be sharp.
The timing adds to the challenge for exporters, as the suspension coincides with the start of the tax phase of the EU’s Carbon Border Adjustment Mechanism and comes just weeks before the expected conclusion of the India–EU Free Trade Agreement negotiations, likely around 27th January 2026. Analysts noted that even if talks conclude on schedule, the agreement is unlikely to take effect for at least a year, leaving exporters to contend with higher tariffs and compliance costs in the interim.
Price-sensitive sectors such as garments are expected to be among the most vulnerable, with the risk that EU buyers may shift sourcing to duty-free suppliers such as Bangladesh and Vietnam. India’s trade in goods with the EU stood at US $ 136.53 billion in 2024–25, with India exporting US $ 7.6 billion worth of textiles and apparels to the EU during the same period.
