By linking two vast markets, the EU-India Free Trade Agreement signals a strategic push towards diversification, resilience, and deeper economic alignment in an increasingly volatile geo-economic landscape
On 27 January, the EU and India concluded a historic Free Trade Agreement (FTA), negotiations for which had been underway for nearly two decades. These began in 2007, stalled in 2013 due to a lack of progress, and were reopened in 2022 amid growing imperatives to diversify economic partnerships and reduce dependencies.
The agreement, dubbed “the mother of all deals”, combines the EU and India’s vast markets — worth a combined US$25 trillion and encompassing 2 billion people — accounting for 25 percent of global GDP. While India has signed a spate of FTAs in recent years, including with Australia, the UAE, the EFTA bloc of non-EU nations, the UK and Oman, the EU-India FTA is the most significant of these.
The EU is India’s top trading partner, while India is the EU’s ninth-largest trading partner, with total annual bilateral trade valued at around €180 billion. The EU accounts for 11.5 percent of India’s total trade, while India accounts for 2.4 percent of the EU’s total trade in goods, underscoring the scope for deepening economic ties. By comparison, China accounts for nearly 15 percent of the EU’s total trade in goods.
In services, India’s opening of 102 sub-sectors to the EU — including in the financial, telecommunications and maritime domains — represents a major breakthrough, given India’s traditional reluctance to liberalise this sector. The EU, in turn, has granted access to144 services sub-sectors, opening up opportunities that could help reduce India’s dependence on the US market for its services exports.
Under the agreement, India will eliminate or reduce duties on 96.6 percent of EU goods exports, while the EU will liberalise 99.5 percent of its tariff lines on goods imported from India over the next seven years. Indian exports from labour-intensive sectors such as textiles, leather, jewellery and garments — that currently face higher-than-average tariffs in the EU alongside stiff competition from countries such as Vietnam, which already has an FTA with the EU, and Bangladesh, which receives preferential tariff rates due to its Least Developed Country (LDC) status — are set to receive a significant boost. In addition, Indian pharmaceuticals, maritime products, appliances, and electrical machinery will see a reduction in European tariffs.
Meanwhile, European automobiles, alcohol, machinery, chemicals, medical equipment, aircraft, and chocolates will benefit from reductions in Indian tariffs. India currently maintains tariffs of over 100 percent on imported cars and tariffs as high as 150 percent on imported wines. These European exports will receive substantial relief, although tariff reductions will be gradual and subject to quotas in order to limit the impact on India’s domestic industry.
In services, India’s opening of 102 sub-sectors to the EU — including in the financial, telecommunications and maritime domains — represents a major breakthrough, given India’s traditional reluctance to liberalise this sector. The EU, in turn, has granted access to144 services sub-sectors, opening up opportunities that could help reduce India’s dependence on the US market for its services exports. This also links to another key deliverable from the EU-India summit: a mobility framework that allows for easier movement of Indian workers and professionals to Europe.
The agreement also brings EU and Indian intellectual property laws closer, thereby providing a high level of protection for intellectual property rights. Notably, the agreement also includes a dedicated chapter on sustainable development, covering environmental issues and labour rights.
Yet, the deal is perhaps as significant for what it excludes as for what it covers. Sensitive sectors such as dairy and agriculture are largely excluded. However, the agreement does reduce prohibitive Indian tariffs on certain EU agri-food exports, such as olive oil, margarine, processed foods, and fruit juices, while leaving out more sensitive products such as sugar and rice.
The deal is perhaps as significant for what it excludes as for what it covers. Sensitive sectors such as dairy and agriculture are largely excluded.
Despite alleged carve-outs granted to the US in its trade negotiations with the EU, India has not secured an exemption from the EU’s Carbon Border Adjustment Mechanism (CBAM), arguably the most contentious issue in the negotiations. Under the CBAM, the EU intends to levy a carbon tax on imports based on their level of carbon emissions. That said, the two sides have agreed to sign a memorandum of understanding (MoU) under which the EU will provide €500 million in funding over two years to support sustainable industrial transformation initiatives in India and encourage emissions reductions.
While negotiations have concluded, the text will be finalised and signed at a later stage this year, after which it will need to be ratified by the European Parliament — a process that is by no means assured, if the Mercosur experience is any indication. As a result, it is unlikely that the agreement will enter into force before 2027. Meanwhile, negotiations on an Investment Protection Agreement and Geographical Indications (GIs) will continue separately.
While negotiations have concluded, the text will be finalised and signed at a later stage this year, after which it will need to be ratified by the European Parliament — a process that is by no means assured, if the Mercosur experience is any indication. As a result, it is unlikely that the agreement will enter into force before 2027.
The last few months saw Indian and European negotiators working at breakneck speed to fast-track the deal in time for the EU-India summit, with US President Donald Trump’s tariff wars undoubtedly playing a key role. There is a risk that the agreement may have fallen prey to the “deadline effect”, whereby the political urgency to conclude negotiations leads to the exclusion of contentious yet critical issues, resulting in a less ambitious and comprehensive blueprint than originally envisioned.
Such caveats aside, the agreement is salient against the backdrop of Trump’s tariff wars and China’s unfair trading practices, both of which have significantly disrupted the global trading system. In an increasingly fragmented and volatile geo-economic environment, the agreement — while not replacing the criticality of trade with the US and China — will contribute to diversification towards more predictable and reliable partners, and in the long run, to a potential reshaping of supply chains. It is also likely to strengthen the negotiating positions of both India and the EU in their respective trade talks with the US: the EU has suspended its negotiations with Washington over the latter’s Greenland threats, while India and the US remain engaged in ongoing talks. The agreement will help reduce vulnerabilities arising from volatile tariff policies and the weaponisation of supply chains, while serving as a tool to preserve strategic autonomy and enhance economic resilience. Crucially for India, it will support greater investment flows from Europe.
In an increasingly fragmented and volatile geo-economic environment, the agreement — while not replacing the criticality of trade with the US and China — will contribute to diversification towards more predictable and reliable partners, and in the long run, to a potential reshaping of supply chains.
Despite some pending business, the significant reduction of tariffs and trade barriers on both sides, alongside provisions in areas such as sustainable development, represents a notable accomplishment. In services and agri-products, India has gone beyond what it has offered in previous free trade agreements and granted greater access to the EU, thereby shifting some of its earlier red lines. At the same time, successfully concluding a deal of this scale while managing to limit access to the most politically contentious agricultural sector constitutes a win for Indian negotiators. Going forward, the redressal of pending issues such as CBAM will be instrumental in determining the extent to which the agreement delivers meaningful gains for businesses on both sides.
What is clear, however, is that the FTA and the deeper integration of two vast economies will provide a major boost to the broader EU-India partnership, which is deepening across a range of areas — from security and defence to technological cooperation.
Shairee Malhotra is Deputy Director - Strategic Studies Programme at the Observer Research Foundation.
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Shairee Malhotra is Deputy Director - Strategic Studies Programme at the Observer Research Foundation. Her areas of work include Indian foreign policy with a focus on ...
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