Why India-EU FTA should worry Bangladesh
For Bangladesh, whose export basket is far narrower, the implications are serious.
The India–EU Free Trade Agreement (FTA), signed on 27 January 2026, is being billed in New Delhi as the "mother of all deals" — and for good reason. The pact promises to transform India's access to one of the world's largest consumer markets by granting duty-free entry to more than 99% of Indian exports to the European Union. In return, India will slash or remove tariffs on 92.1% of EU goods, including machinery, automobiles and chemicals. The agreement is expected to come into force within a year.
Among the biggest beneficiaries are India's labour-intensive export sectors — textiles, apparel, leather, footwear, gems and jewellery, and marine products. Indian garments currently face EU most-favoured-nation tariffs of around 9.6%–12%. Once the FTA takes effect, these duties will be eliminated entirely.
For Bangladesh, whose export basket is far narrower, the implications are serious. Apparel and footwear account for about 85% of total exports, placing the country directly in the line of intensified competition from India in the European Union market, where apparel alone made up 50.1% of Bangladesh's exports in FY2024–25 and 48.84% in July–December of the current fiscal year.
Keep updated, follow The Business Standard's Google news channel
Why India gains an edge
India's competitive advantage rests on several structural factors.
First, it has a deep and integrated supply chain, stretching from cotton and yarn to fabrics, chemicals, accessories and machinery. Bangladesh, by contrast, remains heavily dependent on imported raw materials, mainly from India and China, increasing lead times, costs and foreign currency exposure.
Second, India benefits from a relatively stable energy supply, while Bangladeshi factories frequently face gas and electricity shortages that disrupt production.
Third, superior logistics including modern ports, rail connectivity and hinterland transport, lower India's transaction costs and improve delivery reliability.
Fourth, political stability, a critical consideration for global buyers managing long-term sourcing strategies, works decisively in India's favour.
Finally, India's extensive network of trade agreements covering nearly two dozen partners including the EU, Australia, the UAE and the UK, provides exporters with preferential access across most of Bangladesh's major markets.
The result is a level tariff playing field in the EU, but an uneven competitive one. While Bangladesh and India will both export to the EU at zero duty, India's stronger fundamentals are likely to tilt buyer preferences in its favour.
LDC graduation compounds the risk
The challenge is magnified by Bangladesh's impending graduation from least developed country (LDC) status in November this year. Although duty-free access to the EU will continue during a three-year transition period until 2029, failure to qualify for GSP+ thereafter would expose Bangladeshi exports to duties of at least 12%. India's FTA, by contrast, offers permanent zero-tariff access.
Industry leaders are alarmed. "I am very concerned," said MA Jabbar, managing director of DBL Group, one of the country's largest garment exporters. He pointed to Bangladesh's dependence on imported yarn and chemicals, long lead times and dollar shortages, while noting that Indian manufacturers benefit from tax breaks and targeted incentives.
Those incentives are growing. India's Union Budget 2026–27 announced a ₹40,000 crore textile mission aimed at upgrading the sector and lifting the country from its current position as the world's sixth-largest textile and apparel exporter. In FY2023–24, India exported $34.4 billion worth of textiles and apparel, compared with Bangladesh's $36.15 billion in garment exports alone — a gap that could narrow quickly.
Economist Dr Mohammad Abdur Razzaque warned that the India–EU FTA poses a bigger threat to Bangladesh than the Vietnam–EU deal that took effect in 2020, as India's supply chain strength may prompt buyers to shift orders more decisively. He stressed the urgent need for foreign direct investment to raise value addition and expand production of man-made fibre products.
"If Bangladesh does not secure GSP+ after 2029, exports to the EU could fall by as much as 50%," warned Fazlee Shamim Ehsan, executive president of BKMEA, citing the tariff gap Bangladesh would face relative to India.
Beyond tariffs, exporters also fear mounting non-price pressures. EU due diligence laws coming into force from 2030 will raise compliance costs across the supply chain, while domestic challenges including labour cost increases, port disruptions and governance issues are already discouraging fresh investment.
As footwear exporter Nasir Khan noted, duty-free access alone is not enough. Bangladesh has enjoyed zero-tariff entry into Japan for decades, yet failed to fully exploit the opportunity due to weak backward linkages and raw material dependence.
A narrowing window
Analysts say the India–EU free trade agreement has exposed Bangladesh's vulnerability in its most important export markets, just as LDC graduation draws closer and transitional duty-free benefits set to expire. The risk has been compounded days later by a US–India trade deal under which American tariffs on Indian goods were slashed to 18% from 50%, two percentage points lower than what Bangladeshi exports now face, further tilting the competitive balance against Dhaka.
Together, the twin shocks threaten to erode Bangladesh's long-held dominance in ready-made garments, as India locks in permanent preferential access backed by a deeper, more diversified supply chain. Without swift countermeasures - accelerated FTA negotiations, credible policy reforms and targeted investment to strengthen domestic competitiveness -Bangladesh could find itself scrambling to defend export markets it has long taken for granted.
