Author: Staff Writer

The agreement aims to promote long-term capital for productive capacity building, explicitly excluding foreign portfolio investment.

The India-European Free Trade Association (EFTA) Trade and Economic Partnership Agreement (TEPA) officially came into effect on October 1, 2025.

Signed on March 10, 2024, this agreement marks India’s first free trade agreement with four developed European nations: Switzerland, Norway, Iceland, and Liechtenstein.

TEPA is a comprehensive 14-chapter agreement covering various aspects of trade and economic cooperation. It includes provisions on market access for goods, rules of origin, trade facilitation, trade remedies, sanitary and phytosanitary measures, technical barriers to trade, investment promotion, market access for services, intellectual property rights, and trade and sustainable development.

Notably, it incorporates binding commitments for investment and job creation, a first in any free trade agreement signed by India.

Under TEPA, EFTA countries have committed to increasing foreign direct investment (FDI) in India by $100 billion over the next 15 years.

This investment is expected to generate 1 million direct jobs in India, focusing on sectors such as manufacturing, renewable energy, life sciences, and digital transformation.

The agreement aims to promote long-term capital for productive capacity building, explicitly excluding foreign portfolio investment.

In terms of market access, EFTA has offered India access to 92.2% of its tariff lines, covering 99.6% of India’s exports. This includes 100% of non-agricultural products and tariff concessions on processed agricultural products.

India’s offer to EFTA covers 82.7% of its tariff lines, accounting for 95.3% of EFTA’s exports. Sensitive sectors such as pharmaceuticals, medical devices, processed food, dairy, soy, coal, and certain agricultural products have been protected under the agreement.

TEPA also provides enhanced opportunities for India’s services sector. India has offered commitments in 105 sub-sectors, while EFTA countries have made commitments in 128 sub-sectors (Switzerland), 114 (Norway), 107 (Liechtenstein), and 110 (Iceland).

The agreement facilitates mutual recognition agreements (MRAs) in professional services such as nursing, chartered accountancy, and architecture, enabling Indian professionals to access EFTA markets more easily.

It also improves access through digital delivery of services, commercial presence, and greater certainty for entry and temporary stay of key personnel.

Intellectual property rights (IPR) are another significant aspect of TEPA. The agreement ensures IPR commitments at the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) level.

The IPR chapter with Switzerland sets high standards, addressing India’s interests in generic medicines and concerns related to patent evergreening.

TEPA emphasizes sustainable and inclusive development, aiming to foster transparency, efficiency, simplification, harmonization, and consistency in trade procedures.

It also focuses on employment, skills, and technology collaboration, accelerating the creation of direct jobs for India’s young workforce and facilitating access to world-leading technologies in precision engineering, health sciences, renewable energy, innovation, and research and development.

The agreement is expected to unlock opportunities across a wide range of industries.

With EFTA’s offer covering 92% of tariff lines, Indian exporters in sectors like machinery, organic chemicals, textiles, and processed foods will enjoy significantly improved access to EFTA markets. This will enhance competitiveness, reduce compliance costs, and accelerate access to EFTA markets.

In the agriculture and allied goods sector, India’s exports to EFTA are concentrated, with guar gum accounting for over 70% of the export basket in 2024-25.

Other exports include processed vegetables, basmati rice, pulses, fresh fruits, cereal preparations, and grapes. Norway and Switzerland together account for over 99% of India’s agri-exports to EFTA. The agreement is expected to reduce tariff barriers and expand India’s share in key commodities.

In the services sector, TEPA is expected to boost India’s services exports in areas of core strength such as IT and business services, cultural and recreational services, education, and audio-visual services.

EFTA’s services offers better access through digital delivery of services, commercial presence, and improved commitments and certainty for entry and temporary stay of key personnel.

The agreement also includes provisions for mutual recognition agreements (MRAs) in professional services such as nursing, chartered accountancy, and architecture, creating new avenues for Indian professionals in EFTA markets.

The India-EFTA Trade and Economic Partnership Agreement (TEPA) is a significant milestone in India’s trade relations with Europe.

It enhances market access for goods and services, strengthens intellectual property rights, and fosters sustainable, inclusive development, while supporting initiatives like “Make in India” and “Atmanirbhar Bharat.”

The agreement is expected to have a positive impact on India’s economy by attracting investment, creating jobs, and expanding trade opportunities.

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In a major development, the Reserve Bank of India (RBI) decided to keep its key policy interest rate, the repo rate, unchanged at 5.5%. This decision was unanimously supported by the six-member Monetary Policy Committee (MPC) and aligns with market expectations. The RBI also maintained its neutral monetary policy stance, indicating a balanced approach to managing inflation and supporting economic growth.

Governor Sanjay Malhotra emphasized that the committee opted for a “wait and watch” approach to allow recent policy decisions, including earlier rate cuts and Goods and Services Tax (GST) reforms, to take effect. He noted that the effects of earlier front-loaded cuts are still playing out, and the committee chose to pause further action for now.

In its updated projections, the RBI revised India’s GDP growth forecast for the fiscal year 2025–26 to 6.8%, up from the previous estimate of 6.5%. This adjustment reflects stronger-than-expected economic performance, with a 7.8% expansion in the April–June quarter. The RBI now projects quarterly growth rates of 7.0% for Q2, 6.4% for Q3, and 6.2% for Q4. For the first quarter of FY27, growth is projected at 6.4%.

Concurrently, the RBI lowered its average headline inflation projection for FY26 to 2.6%, down from the earlier forecast of 3.1%. This revision is attributed to the dampening impact of GST rationalization and a sharper-than-expected decline in food prices. Governor Malhotra stated that the overall inflation trajectory has turned more benign, though external uncertainties continue to cloud the economic outlook.

Despite these positive domestic indicators, the RBI expressed caution regarding external risks, particularly the potential impact of U.S. tariffs on Indian exports. Governor Malhotra acknowledged that higher U.S. tariffs of up to 50% on Indian goods could slow external demand. He noted that while domestic economic momentum remains resilient, global headwinds and tariff-related uncertainty warrant caution.

The RBI also highlighted that the decline in headline inflation is largely due to easing food inflation. Retail inflation has remained below the 4% target since February, falling to a six-year low of 2.07% in August, supported by softer food prices and a favorable base effect.

Regarding the Indian rupee, Governor Malhotra stated that the RBI is closely monitoring currency movements. He noted that monetary policy transmission is broadly taking place across sectors and added that the remaining reduction in the cash reserve ratio (CRR) is expected to further strengthen transmission. System-level indicators for banks and non-banking financial companies (NBFCs) continue to reflect strong health.

Looking ahead, the RBI reiterated that its primary mandate is to keep Consumer Price Index (CPI)-based retail inflation at 4%, with a tolerance band of ±2%. The committee’s decision to maintain the repo rate at 5.5% reflects a cautious yet optimistic outlook, balancing domestic economic resilience with external uncertainties. The RBI’s next policy review is scheduled for December 2025, where further adjustments will be considered based on evolving economic conditions.

In a crucial development, the Reserve Bank of India (RBI) has broadened its lending guidelines to allow banks to provide need-based working capital loans to manufacturers that use gold as a raw material, a facility previously limited to jewellers.

Traditionally, banks are barred from financing the purchase of gold or silver in any form, or from lending against primary gold or silver.

However, scheduled commercial banks (SCBs) have been permitted to grant working capital loans to jewellers under a specific carve-out. The new amendment now extends this provision to borrowers engaged in manufacturing or industrial processing where gold or silver is used as an input.

According to the Reserve Bank of India (Lending Against Gold and Silver Collateral) (1st Amendment) Directions, 2025, issued on Monday, September 29, scheduled commercial banks and select urban cooperative banks (Tier 3 and 4) can provide need-based working capital financing to such borrowers, taking gold or silver as collateral.

The directions emphasize that these loans cannot be used to acquire or hold gold or silver for speculative or investment purposes.

In a related move, the RBI also issued the Reserve Bank of India (Interest Rate on Advances) (Amendment) Directions, 2025, aimed at offering borrowers more flexibility while allowing lenders greater discretion.

Under current norms, banks must link all floating-rate retail loans—including housing, auto, and MSME loans—to an external benchmark. While the spread over the benchmark is at the bank’s discretion, components other than the credit risk premium can only be revised once every three years.

The amended guidelines now allow banks to reduce other spread components earlier if it benefits the borrower and give them discretion to offer an option to switch to a fixed rate at the time of reset, beyond the mandatory option for EMI-based personal loans.

Additionally, the RBI revised the eligible limits for perpetual debt instruments (PDIs) denominated in foreign currency or rupee-denominated bonds overseas, enabling banks to raise more Tier 1 capital through international markets.

All the revised directions will come into effect from October 1, 2025, providing greater flexibility to banks while supporting manufacturing entities that rely on gold as a key input.

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