The India–EU FTA is a strategic lever to shift India's focus from IT services to manufacturing
Merchandise exports grew by only 6.4% since 2020, lagging behind the 9.4% growth in total exports
Manufacturing compels "state capacity upgrades" in logistics and skills that mobile services firms often bypass
India’s Economic Survey report 2025-26 has cited the recently concluded Free Trade Agreement (FTA) between the European Union (EU) and India, as proof for the Government’s shifting focus to boost manufacturing exports.
The report stated that the agreement will expand market access for India’s labour-intensive manufactured exports and will enable deeper integration with Europe’s technological and manufacturing capabilities.
1 January 2026
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“The FTA… [will] strengthen India’s manufacturing competitiveness, export resilience and strategic capacity. Realising the potential of trade agreements requires that we can produce competitively,” the report noted.
Why Manufacturing Matters?
The preface of the document stated how there are only limited benefits of having Surplus in Services Trade and strong currencies are generally built by manufacturing exports.
It stated that countries with strong, stable currencies are known for their manufacturing excellence. However, in India services exports have outpaced goods exports.
Over the five years since 2020, the compounded annual growth rate of total exports has been 9.4%, while that of merchandise exports has been only 6.4%. “Services have done much of the heavy lifting, creditable and macro-stabilising, but not a substitute for the goods-based export ecosystems that ultimately underpin durable external and currency stability,” the report stated.
India Shall Move Beyond IT Services Export
The Information Technology-Enabled Services Sector has been India’s mainstay for growth and exports. However, international experience as cited in the report indicates that while service exports are economically valuable, they do not systematically compel broad upgrades in state capacity. This is because successful firms can bypass weak institutions, relocate easily and generate limited economy-wide pressure on governments to reform.
“Unlike manufacturing exports, they [services export] do not impose hard fiscal, employment, or logistical constraints on the State, allowing institutional weakness to persist even alongside globally competitive firms. So, manufacturing matters,” the report stated.
India-EU FTA from Manufacturing Lens
For India, the deal provides duty-free access to a market of 450 million European consumers, particularly benefiting labor-intensive sectors like textiles, leather, and gems and jewelry.
On top of that, India’s concessions are matched by a reciprocal opening of the European market, where Indian exporters of specialised chemicals, machinery, and electrical equipment will now compete on a level playing field, stripped of the prohibitive costs that previously hampered their reach.
