Market Spotlight: Europe

Europe is the largest market for Indian goods and services, accounting for more than 20% of India’s total exports with a value of US$ 98.9 billion in FY24. This implies a 2x growth from the US$ 50.4 billion achieved in FY16. Europe’s share further increased to 23% of India’s total exports in the first three quarters of the current fiscal year. Netherlands, UK, Germany, Italy, and Belgium were the top five European export destinations for India in FY24. Among the commodities, engineering goods and machinery, petroleum products and electronic goods accounts for more than half of Indian exports to Europe.

Competition Analysis

India’s share in exports to Europe increased to 2.6% in 2023 from 2.3% in 2022, and India stood at 10th position (11th in 2022) in terms of the leading exporters to Europe. Global export hubs such as China (20% of total exports to Europe in 2023), the US (13%), and the UK (7%) lead the charts while India faces stiff competition from other economies like Türkiye (4%), Korea (3%), and Japan (3%). India has traditionally been a major player in textiles, pharmaceuticals, auto component, and agricultural exports, driven by its cost-effectiveness and improving quality of the products. Let us look at India’s competition in these sectors:

• China: With its established infrastructure, large scale of production and high cost-efficiency, China is India’s primary competitor in electronics, machinery, textiles, and other manufactured goods. China alone accounted for more than 20% of total imports to Europe in 2023. However, COVID-19 has caused distrust among major global economies regarding China’s credibility leading to diversification of their supply chains away from China. India is well positioned to capitalise on this trend given its friendly relations with major global economies. Also, availability of skilled labour at competitive prices, and favourable geographical location put India in a strong position to present itself as a viable option to China on the global trade map.
• Vietnam: Vietnam has reaped the benefits of its favourable trade agreements with the EU (EU-Vietnam Free Trade Agreement) and is now competing closely with India in sectors where India fared well, including textiles, leather, and electronics assembly. Nevertheless, an FTA between India and Europe is also in the works and the materialisation of the FTA is expected to provide Indian exporters with a boost.
• Bangladesh: Bangladesh majorly competes with India in the garment industry given its low labour costs and abundant workforce availability. Bangladesh largely benefits from its duty-free access to the European Union (EU) market for several products under its Everything but Arms (EBA) initiative. The EBA scheme removes tariffs and quotas for all imports of goods except arms and ammunition coming into the EU from the least developed countries of the world which include Bangladesh, Ethiopia, and Afghanistan, among others. However, the recent political turmoil in Bangladesh has provided a window of opportunity to the Indian exporters to increase their share in the European market.
• Türkiye: Türkiye gives India a tough competition in categories like automotive, textiles and machinery mainly because of its proximity to Europe and its Customs Union agreement with the EU which has fewer barriers compared to India. The EU-Turkey Customs Union aims to promote trade and economic relations between the EU and Türkiye. It allows free movement of goods by eliminating customs duties and quantitative restrictions on products that are either produced or in free circulation, excluding agricultural products and services. Notably, Türkiye accounted for ~4% of total imports to Europe in 2023 as against India with 2.6% of the total imports.

Apart from the above, India competes closely with South Korea, and Japan in exporting goods to Europe. Although India benefits from its cost advantage, vast labour pool, and competitive pricing, these countries excel in high-tech manufacturing, strong brand recognition, and quality-focused industries. To stay competitive, India should concentrate on areas in which it has a distinct advantage, such as pharmaceuticals, textiles, IT services, and auto components, while also prioritising innovation and pursuing strategic trade agreements to improve market access.

India has a strong hold in few categories and is striving to increase its market share. Despite stiff competition, India has the potential to make it to the top five trading partners and maintain its position. Let us talk about the commodities where India has traditionally maintained a stronghold:

• Machinery & Engineering Goods: Engineering is the largest industrial sector in India and accounts for 3.5% of the country's GDP. The country's engineering sector comprises manufacturing iron, steel, related products, non-ferrous metals, industrial machinery, automobiles, auto components, and other engineering products. India has a strong position in exporting shafts, fasteners, and bearings. Engineering goods made up 28% of total exports to Europe in FY25 on YTD basis (Apr’24-Dec’24) and grew 6% y/y to US$ 20.6 billion. The remarkable growth in exports of engineering goods in recent years can be credited to the various government initiatives and schemes particularly, the zero-duty Export Promotion Capital Goods (EPCG) scheme of the Ministry of Commerce & Industry which forms part of the Foreign Trade Policy of the Government of India. As per recent developments, OEMs in India are setting up component manufacturing units with the aim of becoming the sourcing hub for Asia-Pacific region, which is expected to further boost exports from India.
• Gems & Jewellery: The Indian gems and jewellery industry contributes 7% to India’s Gross Domestic Product (GDP). India majorly exports cut and polished diamonds, lab-grown synthetic diamonds, and coloured gemstones among other jewellery. India accounted for ~7.1% of Gems & Jewellery imports to Europe in 2023, up from 6.1% in 2022. In 2023, the government of India eliminated the 5% tax on diamond seed imports to promote the export of lab-grown diamonds. However, gems and jewellery exports have seen a decline recently primarily due to ongoing geopolitical uncertainties, rising interest rates, and a subsequent dip in demand in major markets. Nevertheless, India has been able to consistently increase it share in Europe. In the first nine months of FY25, India’s exports of gems and jewellery to Europe increased 4% y/y to US$ 3.0 billion. The Department of Commerce has set a gems and jewellery export target of US$ 75 billion in coming years (US$ 32 billion in FY24), indicating potential for further policy support to achieve this target.
• Pharmaceuticals: India is the largest global provider of generic drugs with ~20% share in global supply volume and 60% share in production of vaccines. Key segments of the Indian pharmaceutical industry are OTC medicines, generics, APIs, vaccines, biosimilars, and Custom Research Manufacturing (CRM). The total imports to Europe grew 7% YoY in 2023 to US$ 113.2 billion where India maintained its share of 2.6% with US$ 3.0 billion of total imports to Europe. The category leaders are USA (39%) and Switzerland (33%) followed by the UK (8%), while India closely competes with China (2.3%), Singapore (3.8%) and Korea Republic (4.8%).
• Organic & Inorganic Chemicals: India is the sixth-largest global chemical-producing country and the third-largest producer in Asia. India’s share accounted for 6.0% of total European imports in 2023, up from 4.9% in 2022. China leads the category with 23% share of total exports to Europe in 2023, followed by the US (16%). India competes closely with the UK (7%), and Korea Republic (4%). In FY25 (Apr’24 – Dec’24), India’s export of Organic & Inorganic chemicals to the Europe region reached US$ 5.0 billion, exhibiting a growth of 7.0% on y/y basis.
• Textiles, Fabrics & Garments: India’s share of global trade in textiles and apparel stands at 3.9%. As per 2023 data, India was the sixth largest exporter of textiles and apparel in the world. India is a net exporter, with the US and Europe being the major markets, together accounting for 47% of total exports from India in 2023. India’s share in European imports grew to 5.8% in 2023 from 5.7% in 2022. India competes closely with Pakistan (5%), Türkiye (13%) and Bangladesh (15%), while China leads the category with a 29% share.

Apart from the traditional strongholds, India is also witnessing traction in following commodities:

• Electronic Goods: Although India’s foray into the global electronic goods market was delayed, key government initiatives like 'Digital India' and 'Make in India' ensured that it is an impactful one. In the first nine months of FY25, electronic good accounted for 12.5% of total Indian exports to Europe with a value of US$ 9.2 billion, up 55% from first nine months of FY24. It is worth noting that India more than doubled its share of electronic goods import to Europe between 2021 (0.8%) and 2023 (1.7%). Key government initiatives like 'Digital India' and 'Make in India', along with supportive policies such as the favourable FDI policy for electronics manufacturing, have streamlined the process of establishing manufacturing units in India. However, India’s progress is still at nascent stages with tough competition from other Asian countries such as Thailand (2.0%), Japan (2.5%), Malaysia (3.1%), South Korea (3.5%), and Vietnam (4.0%). China and the US lead in the category accounting for 55% of total electronic goods exports to Europe. India can further increase its share in global electronics export given its robust design and R&D expertise in auto electronics and industrial economics. Additionally, it is the world’s second-largest manufacturer of mobile phones. Going forward, India is committed to achieving US$ 300 billion in electronics manufacturing and US$ 120 billion in exports by FY26.
• Coffee, Tea & Spices: India plays a key role in exporting coffee, tea, and spices globally with Europe being a significant importer for these commodities, particularly coffee. Italy, Germany, and Belgium are the top importers of Indian coffee with Italy alone accounting for ~20% of total exports, while Europe absorbs ~70% of total Indian coffee exports.
  India has been consistently growing its share in coffee and tea exports and is the largest spices producer and exporter globally. Out of the three commodities, coffee exhibited highest growth driven by high prices and rising demand for instant and specialty coffee. India’s export of coffee, tea and spices to Europe cumulatively grew 37% y/y in the current fiscal (April’24-Dec’24) to reach US$ 1.2 billion, which now makes up 1.7% of total Indian exports to Europe.
  Regarding India’s share in Europe’s import of coffee, tea, and spices, it grew to 3.3% in 2023 from 3.1% in 2022. As per the 2023 data, Brazil and US lead the Coffee, Tea & Spices category with a 22% and 13% share in Europe’s imports, respectively. India faces stiff competition from China (4.2%), Vietnam (6%), Australia (6.1%) and Ukraine (6.3%). However, it is worth noting that Ukraine and Australia saw significant (30-40%) decline in 2023, reducing their shares in the European market.

SWOT Analysis

India-Europe Trade Agreements

India signed a Trade and Economic Partnership Agreement (TEPA) with a bloc of four European countries — Iceland, Liechtenstein, Norway, and Switzerland, formally known as the European Free Trade Association (EFTA). The deal offers more room for Indian services firms, with easier visa rules, so that they can tap other European markets using these countries as a base. The agreement ensures reduction in tariffs on about 95% of goods imported from Switzerland, India’s largest EFTA trade partner. The essence of this agreement is the in-built goal to fetch US$ 100 billion of fresh foreign direct investment into India and create a million jobs over 15 years. This could potentially lead to US$ 400-500 billion in investment proposals for India. In FY24, India-EFTA trade had surpassed US$ 24 billion with Switzerland being the largest trading partner.

The EFTA pact, expected to be implemented by the end of 2025 or early 2026, also marks the first time India agreed to include non-trade issues such as labour, human rights, environment, and gender in an economic agreement.

India and Europe are moving toward deeper trade relations, with several agreements and negotiations underway to further boost economic cooperation across various sectors. Some key agreements and ongoing negotiations between India and Europe include:

• India-European Union Free Trade Agreement (FTA), Investment Protection Agreement and Geographical Indications Agreement: The negotiations were relaunched in June 2022 and have been ongoing. This agreement aims at the removal of trade barriers, particularly for smaller firms, opening of services and public procurement markets and commitment towards trade and sustainable development. The investment protection negotiations aim to provide investors from both sides with a predictable and secure investment environment and seek to put in place an effective and state-of-the-art dispute settlement mechanism to enforce rules.
• India-UK Free Trade Agreement: The agreement seeks to enhance trade and economic cooperation between India and the UK. Currently, the negotiations are on, and both countries aim to fast track the delayed negotiations amid the growing tariff threats from the newly elected US president Donald Trump. As many as 14 rounds of negotiations have taken place between both the countries till now. 
• India-EU Trade and Technology Council (TTC): Established in April 2022, the TTC aims to enhance cooperation on digital transition, green technologies, and trade and investment. Key topics for discussion include collaboration on digital public infrastructure and its compatibility, strengthening the resilience of critical value chains, and joint efforts on global trade matters. Talks are to be held at the end of February 2025.
• Belgian Economic Mission to India: Further deepening the economic ties, Princess Astrid of Belgium is leading the Belgian Economic Mission to India in March 2025, aiming to boost economic cooperation between the countries. The mission will target six primary sectors: climate and renewable energy, health and life sciences, construction and eco-construction, transport and logistics, space and defence, and the decarbonisation of steel.

Key challenges that stand between Europe and India

• While there is significant potential, negotiations often stall due to differences in regulatory frameworks, data protection rules, labour rights, and environmental policies.
• Some European countries are also concerned about India's approach to intellectual property, trade liberalization, and government procurement.

Actionable insights for Indian brands

European consumer preferences have evolved significantly in recent years, driven by shifts in societal values, technological advancements, and environmental concerns. Here is a look at the key consumer trends in Europe which Indian exporters can capitalise on:

• Sustainable, eco-conscious and socially responsible brands: European consumers increasingly seek products that are environmentally friendly, ethically sourced, and aligned with the concept of circular economy. Consumers favour brands that make products from sustainable materials, such as organic cotton, bamboo, or biodegradable plastics and use biodegradable and recyclable packaging. Socially responsible brands are including businesses that recognise their social responsibilities, including giving back to the society, being mindful of local communities, engaging in fair trade and giving importance to diversity, inclusivity, and gender equality at their workplaces. European consumers are leaning towards brands which use their business influence responsibly.
  Bambrew, a sustainable bamboo packaging solutions provider, is one of the Indian brands capitalising on the above trends.
• Health and Wellness: The demand for natural, herbal, and plant-based health & wellness products has garnered significant interest from European consumers. Patanjali Ayurved is one such Indian company which has benefitted from this trend by entering a strategic partnership with ADF Foods to expand its footprint in UK and Western Europe. It offers a range of Ayurvedic and natural products.
• Personal Data Privacy and Security: European consumers are aware and concerned about data security and privacy which led to implementation of stringent regulations like the GDPR (General Data Protection Regulation). India emerged as a key global player in software solutions sector owing to its skilled workforce, technological advancements supportive government policies. Zoho, a leading Indian SaaS (Software as a Solution) company, significantly expanded its operations in Europe as it adheres to the stringent European data protection regulations, and its cloud-based tools emphasise security. The company invested ~60% of its revenue back into R&D, enables it to offer innovative and localised solutions to its European clientele.