Kamal Ghorui
India’s exports to the European Union is facing higher import tariffs from January 1, 2026, after the EU suspended Generalised Scheme of Preferences (GSP) benefits for 87% of Indian goods, according to a report by trade policy think tank, Global Trade Research Initiative (GTRI).The move means that a large share of Indian exports will now be charged full Most Favoured Nation (MFN) tariffs, ending years of preferential access under the EU’s unilateral trade arrangement for developing countries.
What changes with GSP withdrawal
Under the GSP framework, Indian exporters benefited from a margin of preference (MoP) — a reduction on MFN tariffs — which averaged around 20% for most textiles, garments and industrial products. With the suspension now in effect, that preference has ended.For example, an apparel item that attracted a 12% MFN tariff but paid only 9.6% under GSP will now be subject to the full 12% duty, directly impacting exporter margins.GTRI said this change is particularly significant for price-sensitive sectors such as garments, where even small tariff increases can influence sourcing decisions and push EU buyers towards duty-free suppliers such as Bangladesh and Vietnam.
Impact across core industrial sectors
The suspension applies to nearly all major industrial categories that form the backbone of India’s exports to Europe. These include minerals, chemicals, plastics and rubber, textiles and garments, stone and ceramics, precious metals, iron and steel, base metals, machinery, electrical goods and transport equipment.GSP preferences will now remain available only for a limited set of products — agriculture and food, leather goods, wood and paper, footwear, optical and medical instruments, and handicrafts — together accounting for less than 13% of India’s exports to the EU.
FTA optimism tempered by timing
While negotiations on the India–EU Free Trade Agreement are close to conclusion, the agreement is expected to take at least a year to come into force. Until then, exporters will have to operate under full MFN tariffs, raising costs and squeezing margins.The timing adds to near-term challenges, as exporters adjust to higher duties amid already fragile global trade conditions.
CBAM adds another layer of cost
The impact of GSP withdrawal coincides with the start of the tax phase of the EU’s Carbon Border Adjustment Mechanism (CBAM) from January 1, 2026.Indian steel and aluminium exporters are facing rising carbon reporting and compliance requirements, along with the risk of being charged default emissions values, increasing non-tariff costs. GTRI described the combined effect of higher tariffs and CBAM compliance as a double pressure on exporters.
Why the EU withdrew GSP benefits
The EU’s GSP system allows developing countries to export at reduced tariffs but includes “graduation” rules, under which preferences are withdrawn once exports in a product group cross a threshold for three consecutive years.India has been graduated for the 2026–2028 period under Commission Implementing Regulation (EU) 2025/1909, adopted in September 2025. While the decision follows established EU rules, the report notes that the economic impact is immediate, with most Indian exports losing preferential access at once.With higher tariffs, rising compliance costs and delayed FTA relief, 2026 is shaping up as a particularly testing year for Indian exports to Europe, GTRI said.Ajay Srivastava noted that until the India–EU FTA is implemented, exporters will need to navigate a period of reduced competitiveness, especially in sectors exposed to both tariff and climate-related trade measures.
