New Delhi

From January 1, 2026, Indian exporters face higher costs in the European Union as 87% of India’s shipments lose the EU’s Generalised Scheme of Preferences (GSP) benefits. Previously, GSP allowed Indian goods to enter EU markets at reduced tariffs, but the suspension now forces exporters to pay full Most Favoured Nation (MFN) duties.

Under GSP, tariffs on textiles, garments, and industrial products were typically reduced by about 20%. With the suspension, products like apparel now face the full 12% MFN tariff instead of 9.6%. The move affects major sectors including minerals, chemicals, plastics, iron, steel, machinery, and electrical goods, leaving preferential rates only for select items such as agriculture, leather, and handicrafts, which comprise less than 13% of exports.

The EU’s action follows its “graduation” rules, which withdraw GSP benefits once exports in a product category exceed a set threshold for three consecutive years. India’s graduation covers the 2026–2028 period.

Trade experts warn that the suspension coincides with the EU’s Carbon Border Adjustment Mechanism (CBAM), increasing non-tariff costs for steel and aluminium exporters. The combined impact of higher tariffs and compliance costs may push EU buyers toward duty-free suppliers like Bangladesh and Vietnam, squeezing Indian exporters’ margins.

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The Global Trade Research Initiative (GTRI) calls 2026 “likely one of the toughest years for Indian exports to Europe in more than a decade,” highlighting the interim challenge until the India-EU Free Trade Agreement is implemented.