The European Union has taken a significant step by suspending the Generalized Scheme of Preferences (GSP) tariff benefits for a broad range of Indian exports starting January 1, 2026. This decision is poised to substantially increase the tariffs on goods shipped to the 27-nation bloc, potentially undermining India’s competitive pricing in crucial sectors. This development was reported by The Hindu on January 25, 2026.
This suspension will be in effect from 2026 through 2028 and specifically impacts India, Indonesia, and Kenya, as stated in a regulation published in the Official Journal of the European Union following approval by the European Commission on September 25, 2025.
What makes this change particularly noteworthy is its timing; negotiations for a free trade agreement (FTA) between India and the EU are expected to culminate just a couple of days later, on January 27. This raises important questions about the future of trade relations between these entities.
According to insights from the Global Trade Research Initiative (GTRI), a staggering 87 percent of Indian exports to the EU will now be subjected to higher most-favored-nation (MFN) tariffs, following the withdrawal of GSP concessions. Only a small fraction, approximately 13 percent of exports, which primarily includes agricultural and leather items, will still benefit from preferential access.
Previously, the GSP allowed Indian exporters to sell their products in the EU at lower duties than the MFN rates. For instance, an apparel item that faced a 12 percent tariff would only incur a 9.6 percent duty under the GSP scheme. As of January 1, however, exporters will be required to pay the full tariff amount.
The EU's removal of GSP benefits encompasses nearly all major industrial sectors critical to India’s exports, which includes textiles, garments, plastics, rubber, chemicals, iron, steel, machinery, electrical goods, and transportation equipment. These sectors have been pivotal to India's export economy to Europe. Although the EU has previously made reductions in preferences, this marks a complete withdrawal of GSP advantages for a three-year duration.
GTRI Founder Ajay Srivastava highlighted that Indian exporters will now face increased trade barriers, which will be exacerbated by rising compliance costs and the impending implementation of the EU’s Carbon Border Adjustment Mechanism. He cautioned that in price-sensitive industries like garments, the loss of GSP benefits could lead EU buyers to turn to suppliers from countries such as Bangladesh and Vietnam that offer duty-free goods.
In the fiscal year 2024-25, India’s goods trade with the EU reached an impressive $136.53 billion, with the EU representing approximately 17 percent of India’s total exports.
But here's where it gets controversial: How will this shift impact India's economic landscape and its relationship with the EU? Are there alternative strategies that India could pursue to maintain its competitiveness in the global market? We invite you to share your thoughts and perspectives!
