After nearly twenty years of negotiations, India and the European Union (EU) finalised a landmark free trade agreement (FTA) on 27th January 2026, widely referred to as the “mother of all deals.” This agreement unites nearly 2 billion people and accounts for approximately 25% of global GDP, valued at nearly $27 trillion. 

The deal arrives amid shifting geopolitical dynamics and global trade disruptions, notably influenced by the United States’ prior trade policies, which have accelerated the realignment of international trade alliances.

European Commission President Ursula von der Leyen described the deal as historic. She said, “The EU and India make history today, deepening the partnership between the world’s biggest democracies. We have created a free trade zone of 2 billion people, with both sides set to gain economically. We have sent a signal to the world that rules-based cooperation still delivers great outcomes. And, best of all, this is only the start – we will build on this success, and grow our relationship to be even stronger.”

Indian Prime Minister Narendra Modi called it transformative and quoted, “​This alignment is no accident; as market economies, we have shared values. We have shared priorities toward global stability, and as open societies, there is also a natural connection between our people. On this strong foundation, we are taking our partnership to new heights. We are establishing it as one of the world’s most influential partnerships, and the results are clearly visible to us. In the last 10 years, our trade has doubled, reaching 180 billion euros.”

“More than 6,000 European companies are working in India. There is more than 120 billion euros of investment from the European Union into India. 1,500 Indian companies are present in the European Union, and Indian investment there has reached nearly 40 billion euros. Today, there is deep cooperation between Indian and European companies in every field – R&D, manufacturing, and services. And business leaders like you are both the doers and the beneficiaries of this,” he added.

Bilateral goods trade between India and the EU reached $136.5 billion in the fiscal year through March 2025 (April 2024 to March 2025), with the EU now India’s largest goods trading partner. India’s EU exports were valued at over $75.85 billion for the same period, while services reached $83.10 billion in 2024. 

The agreement aims to increase bilateral trade to approximately $200 billion by 2030. Services trade has also grown, with Indian exports to the EU rising from €22.5 billion in 2019 to €44 billion in 2024, primarily in IT and business consulting.

The deal is expected to boost manufacturing and exports in India, particularly in labour-intensive sectors, while providing EU companies with improved market access and investment opportunities.

Reduced tariffs on the majority of traded goods

The India-EU FTA is India’s most comprehensive trade agreement to date, covering goods, services, and investments across the EU’s 27-member customs union.

India would cut tariffs on 99.5% of its exports to the EU right away. This includes important areas like textiles, seafood, and footwear. In return, the EU will lower or remove tariffs on 96.6% of its exports to India. This will save the EU €4 billion each year in duties.

Other tariff reductions include the elimination of duties on Indian apparel and textile exports, opening access to a $263 billion European market. Leather, footwear, gems, and jewellery exporters from India are expected to benefit substantially, with bilateral trade in these sectors projected to double within 3 years. 

Indian food products such as tea, coffee, spices, and seafood would gain preferential access. However, sensitive areas such as dairy and poultry are still protected.

On the EU side, tariffs on machinery, chemicals, pharmaceuticals, aircraft, and spacecraft will be phased out, with immediate relief on many products. The agreement allows up to 250,000 European vehicles to enter India annually at preferential tariff rates.

Services trade is a major component, with the EU opening 144 services subsectors to India, including financial, maritime, and telecommunications services. India reciprocates by opening 102 subsectors to EU firms. Both parties agreed to simplify customs procedures and strengthen intellectual property protections.

In a conversation with TTP, Mr Imran Khan, Executive Director of the International Chamber of Commerce India, discussed the impact of this deal on the balance of trade and investment flows between India and the EU over the next decade. He said, “The agreement is expected to lead to a clear expansion in two-way trade and EU investment in India, although outcomes will depend on how effectively it is implemented and how competitive Indian firms remain. The starting point is already strong: EU–India goods trade exceeded €120 billion in 2024, services trade was around €60 billion, and EU foreign direct investment in India stood above €140 billion, supported by a large number of EU companies operating locally.”

“According to the European Commission, extensive tariff reductions and simpler customs procedures should lower costs for exporters and improve supply-chain efficiency. Over time, this could encourage deeper supply-chain linkages and more investment-led manufacturing in India. Whether the trade balance shifts in India’s favour will largely depend on how well Indian businesses scale exports, attract investment, and move into higher-value segments,” he added.

How would the EU benefit from the FTA?

The European Union gains significant advantages from the India-EU free trade agreement, which offers India’s deepest tariff cuts to any partner. 

Car tariffs will fall from 110% to 10%, with car parts tariffs eliminated within 5 to 10 years. Machinery, chemicals, and pharmaceuticals tariffs, currently up to 44%, 22%, and 11%, are likely to be removed. This change will make EU exporters more competitive. 

SMEs would receive dedicated support with contact points to help them navigate the agreement, improving transparency and market access. 

Agri-food tariffs averaging over 36% will be reduced, with wine tariffs halved from 150% to 75% initially and olive oil tariffs phased out in 5 years. 

Sensitive sectors like beef and sugar remain protected. The deal also grants privileged access to India’s services market, especially financial services, with India’s strongest commitments to date. India will strengthen its intellectual property laws to match EU standards. 

The agreement also emphasises commitments to sustainability, including cooperation on climate action. It includes a €500 million EU fund to help India’s green transition, which will enhance trade and strategic ties between the EU and India.

What’s in it for India?

India’s leather and footwear sector, known for its skilled craftsmanship and MSME innovation, is set to grow exponentially in Europe. Tariffs up to 17% will be eliminated immediately. This would increase India’s exports valued at approximately $2.4 billion and increase its share in the EU’s $100 billion leather and footwear import market. Regulatory alignment and support for sustainable, design-led products will help shift the sector towards higher-value production.

Marine exports will also benefit, with tariffs up to 26% reduced, unlocking access to the EU’s $53.6 billion seafood market. This will increase competitiveness for India’s $1 billion marine exports, particularly shrimp and frozen fish, supporting coastal communities and the blue economy.

India’s medical instruments and appliances sector will see tariffs of up to 6.7% removed across 99.1% of trade lines, facilitating cost-competitive entry into European markets for products like lenses and medical devices.

The gems and jewellery sector, valued at $2.7 billion in exports, gains preferential access to the EU’s $79.2 billion import market, boosting competitiveness and job creation. 

Additionally, textiles and apparel will gain zero-duty access across all tariff lines, opening the EU’s $263.5 billion import market. This expansion supports India’s $36.7 billion global textile exports, including $7.2 billion to the EU, benefiting MSMEs and employment.

India’s plastics and rubber industries, with current exports of $2.4 billion to the EU and $13 billion globally, will gain from preferential access to the EU’s $317.5 billion market, supporting export growth and job creation.

On the chemical exports side, covering 97.5% of India’s export basket by value, will see tariffs up to 12.8% eliminated, enhancing competitiveness in the EU’s $500 billion chemical import market.

Mines and minerals will enjoy zero-duty access, enabling India to expand in Europe’s high-value markets and strengthen partnerships in steel, electronics, automotive, and renewable energy sectors.

Lastly, Indian wooden crafts and furniture will see tariff reductions of up to 10.5%, improving competitiveness in design-focused markets and strengthening India’s position in global furniture supply chains.

Mr Khan emphasised that the agreement’s longer-term impact on India’s role in global value chains is likely to come less from tariff cuts and more from lower friction and clearer, more predictable rules. 

He quoted, “In pharmaceuticals, stronger intellectual-property frameworks and regulatory cooperation can support higher-value manufacturing and research partnerships. In textiles and apparel, quicker customs clearance and stable market access improve speed-to-market, which is crucial for European buyers. In technology and electronics, simpler conformity assessment and clearer standards can reduce transaction costs that often limit deeper integration. By reducing uncertainty across borders, the agreement can help India shift from transactional exports to embedded participation in European production networks.”

The way ahead for the EU-India FTA

The agreement’s final text is undergoing legal scrutiny in Brussels and New Delhi and is expected to become operational in 2027. The deal’s success will depend on effective implementation, regulatory alignment, and sustained political support.

Negotiations began in 2007 but were suspended in 2013, only to resume in 2022. The last formal round occurred in October 2025, followed by final technical and political discussions. The agreement was reached amid rising global trade tensions and shifting alliances, largely due to US tariffs on Indian and European goods, which disrupted traditional trade and prompted a search for alternative partnerships.

The deal marks a milestone in India’s trade policy, reflecting its growing capacity to engage with complex trading blocs. It also signals the EU’s strategic intent to diversify partnerships amid global uncertainties. Following the signing of the EU-Mercosur agreement in January, the India-EU deal reinforces the EU’s strategy to diversify trade partnerships with major emerging economies. These agreements, concluded within weeks of each other, strengthen the EU’s access to large markets in South America and South Asia. Together, they enhance the EU’s global trade influence amid shifting geopolitical dynamics.