India’s exports to EU to face higher tariffs from 2026:Benefits withdrawn for 87% of goods – here’s a list of affected and unaffected items

India is set to face a major trade challenge in the European Union, effective January 1, 2026, as the EU suspends Generalised Scheme of Preferences (GSP) benefits on a large share of Indian exports. As a result, about 87% of India’s goods exported to the EU will start paying higher import duties, according to a report by the Global Trade Research Initiative (GTRI). The move will significantly raise costs for Indian exporters at a time when global trade conditions remain weak. What is GSP and why it matters? The EU’s GSP is a unilateral trade scheme that allows developing countries to export goods to Europe at lower-than-normal tariffs, known as Most Favoured Nation (MFN) tariffs. Under this system, Indian exporters received a “margin of preference” (MoP)—a discount on the standard EU tariff. For many products such as textiles, garments and industrial goods, this discount averaged around 20%. Explaining the impact, Ajay Srivastava, founder of GTRI, said: “In simple terms, an apparel product facing a 12% MFN tariff paid only 9.6% under GSP. From January 1, 2026, this benefit ends and exporters will have to pay the full 12% duty.” 87% of Indian exports lose tariff benefits According to the GTRI report, the EU has withdrawn GSP benefits for almost all major industrial sectors that form the backbone of India’s exports to Europe. Together, these sectors account for nearly 87% of India’s total exports to the EU, and all of them will now face full MFN tariffs. Only 13% of exports still get GSP benefits GSP benefits will now apply to only a small group of products, covering less than 13% of India’s exports to the EU. “Most Indian exports will lose preferential access to the EU market almost overnight,” the GTRI report noted. Garments sector among the worst hit Highly price-sensitive sectors such as garments and textiles are expected to be hit hard. Even a small rise in tariffs can make Indian products less competitive in the EU. “As tariffs rise, EU buyers may shift orders to duty-free suppliers like Bangladesh and Vietnam,” Ajay Srivastava warned, adding that the loss of GSP could seriously hurt India’s market share. Bad timing despite India–EU FTA talks The setback comes at a difficult time for exporters. While negotiations for the India–EU Free Trade Agreement (FTA) are close to conclusion, the agreement is unlikely to come into force for at least another year. Until then, Indian exporters will have to absorb higher tariffs, lower margins, and increased compliance costs. “Even with optimism around the FTA, exporters will face tougher trade barriers in the near term,” the GTRI report said. Double blow from EU’s carbon rules Adding to the pressure is the EU’s Carbon Border Adjustment Mechanism (CBAM), which entered its definitive phase on January 1, 2026. Indian exporters of steel and aluminium now face higher costs linked to carbon reporting and compliance. There is also a risk of being charged inflated default emissions, further raising costs. “The withdrawal of GSP and the rollout of CBAM together deliver a double hit—higher tariffs and higher non-tariff barriers,” Ajay Srivastava said. 2026 likely to be a tough year for exporters The EU’s decision follows its GSP graduation rules, under which benefits are withdrawn if exports in a product category exceed a set threshold for three consecutive years. India has been formally “graduated” for the 2026–2028 period under EU regulations adopted in September 2025. While the move is legally justified, the economic impact is expected to be severe. “Until the India–EU FTA becomes operational, 2026 may be one of the toughest years for Indian exports to Europe in over a decade,” the GTRI report concluded.