India’s new trade openings in Europe are exposing a central weakness in the country’s manufacturing strategy: tariff concessions can create access, but they cannot by themselves create globally competitive factories. The India-UK free trade agreement, which came into force in July, and a proposed agreement with the European Union expected to be signed next month are being presented as opportunities for manufacturers to expand. But the harder task will be converting lower duties into higher exports, stronger supply chains and sustained job creation.
That challenge is reflected in the 20% annual growth target proposed by Narayan Sethuramon, co-chairman of the CII International Council, in an interview reported by The Times of India. His argument is not simply that Indian companies should sell more abroad. It is that manufacturing cannot remain tied to the growth rate of the domestic economy if India wants to raise manufacturing’s share of gross domestic product from about 14% to 25%.
The distinction matters for cities and industrial regions. Export expansion requires more than production capacity. It depends on testing laboratories, certification systems, logistics networks, skilled labour, reliable suppliers and institutions capable of helping smaller firms understand complex market rules. If those systems remain weak, the formal benefits of trade agreements may be captured mainly by companies that already have the scale and expertise to operate internationally.
The UK agreement illustrates both the opportunity and the risk. Sethuramon said duties on textiles had fallen from 12% to zero under the agreement, potentially improving the position of Indian suppliers in categories such as home apparel and technical textiles. Yet the reduction in tariffs does not identify which products have the strongest demand, which firms can meet the required standards or how smaller exporters should navigate the agreement’s rules.
That is why industry bodies are attempting to build an intermediary layer between trade policy and individual companies. According to Sethuramon, the Confederation of Indian Industry is conducting awareness sessions through regional and state offices and has launched Market Facilitation Services through its task force on export competitiveness and supply chain resilience. The process is described as a seven-step exercise beginning with market and product identification and reaching down to the six-digit Harmonised System code level.
This type of assistance is particularly important for small and medium enterprises, which Sethuramon said account for a significant share of India’s exports. An FTA is negotiated nationally, but its practical use is determined at the level of individual firms. A manufacturer must know whether a specific product qualifies, what documentation is required, whether a buyer recognises its certification and whether the cost of compliance still leaves a viable margin.
The evidence in the interview suggests that India’s export problem is therefore partly an institutional problem. The government has undertaken research identifying products in which India has a dominant market share, products where its share is below 15%, and categories that could face additional certification requirements or non-tariff barriers. But information has value only if it reaches companies in usable form and is connected to finance, testing, logistics and buyer relationships.
European sustainability rules make this gap more significant. Sethuramon acknowledged that the costs associated with carbon emissions, the European Union Deforestation Regulation and the Carbon Border Adjustment Mechanism would reduce exporters’ margins. His assessment was that Indian companies could remain competitive after accounting for those costs, but he also called for the government to engage with European counterparts on additional time for small and medium-sized companies.
The issue is not limited to the price of carbon. Certification and testing are also described as major barriers. Certificates issued by Indian laboratories are not recognised in many European countries, according to Sethuramon, creating the need for mutual recognition agreements. Without them, companies may have to repeat testing overseas, raising costs and slowing delivery. European buyers may also ask for certifications such as EcoVadis, while India needs more organisations capable of providing such services to domestic suppliers.
This is where the transition to greener trade becomes an urban and industrial infrastructure question. Manufacturing clusters need credible laboratories, accredited auditors, energy and emissions data systems, waste-management capacity and transport networks that can support time-sensitive exports. The interview does not quantify these gaps, but it identifies a clear institutional risk: a company may receive preferential tariff access and still be unable to use it because the surrounding compliance ecosystem is too expensive or fragmented.
The sectors identified as having export potential span both established and emerging manufacturing. Textiles and leather goods remain important, while marine products, engineered goods and foundries could offer opportunities in sectors that employ large numbers of people. Precision-engineered products and defence manufacturing represent a more advanced segment of the strategy. Sethuramon said the private sector accounted for 23% of defence production last year, compared with a single-digit or negligible share not long ago. Air conditioners were cited as another segment in which exports have grown considerably.
These examples point to a broader policy tension. India needs traditional industries because they employ large workforces and already possess supplier networks. At the same time, future export growth cannot depend only on products competing primarily on low cost. Precision engineering, technical textiles, advanced components and other higher-value goods require stronger quality control, research capacity and specialised skills. The interview supports a mixed strategy rather than a choice between labour-intensive and advanced manufacturing.
The proposed growth target also reveals the scale of the ambition. Sethuramon said a manufacturing company that merely retains its existing domestic market share would grow at the economy’s 7-8% rate, which he considered insufficient. He argued that manufacturing enterprises should target 20% year-on-year growth, with exports providing the additional expansion. This is an industry aspiration rather than a government forecast, but it places export performance at the centre of the manufacturing debate.
The geography of that ambition is equally important. Sethuramon identified Germany, Italy, Spain and the Netherlands as priority European markets, while also describing the UK as a near-term opportunity. He said India’s share of imports in many products across these markets remains in single digits or low double digits. For the UK, he cited CII analysis showing that India’s share was not more than 10% in any of the products examined.
Low existing market share can indicate room to grow, but it does not establish that growth will occur. Indian firms must still secure buyers, meet specifications, deliver consistently and compete with established suppliers. The interview therefore places considerable responsibility on structured buyer-seller meetings and industry associations. The government, in this account, has completed much of the policy groundwork; companies and industry bodies must now convert the opening into transactions.
The proposed European strategy is also being framed as diversification rather than a replacement for the United States. Sethuramon said the US would probably remain India’s largest merchandise export market for the next few years and argued that, despite tariffs, sales in many manufacturing sectors had not declined. He described Europe and the UK as additional markets that can reduce concentration risk and create new growth opportunities.
That distinction is important because export diversification is often discussed as a response to geopolitical uncertainty, while companies ultimately make decisions based on cost, demand and reliability. The interview links current uncertainty in the Gulf and wider global economy to slower investment and weaker business confidence, but it does not claim that these factors will prevent the FTAs from being implemented. Instead, it suggests that instability could affect the pace at which their benefits are realised.
The central lesson is that trade policy is only one part of industrial policy. The UK and EU agreements may lower the formal cost of entering major markets, but the practical result will depend on whether Indian manufacturers can satisfy technical and environmental requirements at competitive cost. For SMEs, that means access to market intelligence, recognised testing, certification support, finance and reliable logistics—not merely information that an agreement exists.
The evidence supplied in the interview confirms a substantial opportunity, but it does not yet establish the scale of additional exports, investment or employment that the agreements will generate. The developments that deserve monitoring are concrete: whether trade with the UK accelerates after the tariff changes, whether mutual recognition arrangements reduce certification costs, how SMEs respond to European sustainability rules, and whether the proposed EU agreement moves from political promise to usable market access. India’s manufacturing growth will be determined less by the signing ceremony than by what firms and institutions can do after it.
