Potential Impact of Withdrawal of Generalized System of Preferences for India by European Union

Abstract

Trade between India and Europe has been growing at strong pace for the last two decades. India’s goods exports to Europe have increased from USD 12.3 Bn in 2002 to USD 68.9 Bn in 2002. During the same time period India’s export products eligible for Europe Generalized System of Preferences (GSP) has also risen in absolute terms from USD 5.8 Bn in 2002 to USD 19.7 Bn in 2022. While the absolute value of GSP covered products has increased, the percentage coverage of India’s export products eligible for Europe GSP has fallen from 47% in 2002 to just 29% in 2022. Since, the end of 2022, India is graduating out of many sectors covered under the GSP regime. While, this is a major concern for policymakers, and exporters in general, the potential impact has not been quantified. This article quantifies this impact applying CGE modelling through GTAP. The results show that, while India’s overall exports are affected only to a minimum extent by the removal of GSP, it is mainly due to the growth in non-GSP sectors and services exports. However, the negative shock on some labour-intensive sectors will have an impact on the country’s overall GDP.