India EU trade deal: What it means, what’s next

After nearly two decades or 18 years in the making, the India-EU FTA is set to bring major gains to both amid ongoing global trade tensions due to US tariff policies.

Before the visit to New Delhi, European Commission president Ursula von der Leyen posted on X about the proposed free trade agreement, calling it “the mother of all trade deals.” She also said in a post: “We are getting closer to the EU-India FTA. See you soon in Delhi.”

She and European Council President Antonio Luis Santos da Costa will be chief guests at the Republic Day celebrations. Expectations indicate that negotiations on the deal could be concluded on January 27, as the two will co-chair the 16th India-EU summit hosted by Prime Minister Narendra Modi, giving a major boost to bilateral relations and trade.

A statement issued by the European Council said: “At the summit, the leaders are expected to adopt a comprehensive joint EU-India strategic agenda, aimed at increasing strategic cooperation between the two sides in four areas, strengthened by enablers across the pillars – prosperity and sustainability, technology and innovation, security and defence, connectivity and global issues.”

India, facing 50 percent US tariffs since mid-2025, has been working hard to diversify its exports and is negotiating trade deals with several countries, and this will actually be the ninth deal in four years. For the European Union, the huge Indian market provides a huge opportunity for its products.

Madhavi Arora, chief economist at global financial services firm Emkay, noted that the impending free trade agreement between India and the EU comes at a critical juncture – of fragmentation of global trade, rising protectionism, trade frictions between the US and India, and growing global uncertainty. “The agreement can serve as an effective countercyclical buffer by improving the participation of India’s exports in global value chains, expanding market access, and supporting supply chain diversification,” it said in a note. Since the EU accounts for nearly 17% of India’s goods exports, the agency estimates that a potential bilateral alliance could lift India’s exports to the EU by nearly $50 billion by 2031, led by medium-tech manufacturing.

Understanding business relationships

Trade in goods as well as foreign direct investment between India and the EU have been strong over the past few years. According to official data, bilateral trade volume reached about $136 billion in 2024-25, making it the largest goods trading partner with the EU and India. Between 2019 and 2024, India-EU bilateral trade in services grew steadily, with Indian exports rising from €19 billion to €37 billion and EU exports to India increasing to €29 billion.

As of 2024, over 931,607 Indians reside in the EU, including 16,268 Blue Card holders, and in the last 20 years, over 6,000 Indian students have been awarded Erasmus Mundus scholarships, highlighting India-EU educational ties.

“India-EU relations have evolved into a strong and forward-looking partnership based on shared values, growing economic ties and common strategic interests. The EU’s steady rise in trade and investment and cooperation in areas such as connectivity, clean energy, digital technologies, security and labor mobility reflect a partnership that produces clear and practical results,” an official statement said.

For Indian consumers, a free trade agreement could lead to cheaper and easier access to cars, wines and spirits from the EU.

The most important exports from India to the European Union included petroleum products, textiles, electronics and computer machines. The most important imports from the EU also included computers, electronics, aircraft, medical devices, gems and jewellery.

India’s cumulative FDI inflows from the EU during the period April 2000 to September 2024 stood at $117.4 billion with 6,000 EU companies present in India. Foreign direct investment from the European Union represents 16.6% of the cumulative amount of foreign direct capital flows from all countries, which amounted to $708.6 billion.

“For India, the deal promises restored market access, relief in tariffs on labour-intensive exports, and new opportunities in services; for the EU, it delivers scale, growth and supply chain diversification beyond China,” said Ajay Srivastava, founder of the Global Trade Research Initiative.

A recent report by Barclays India also noted that India’s trade integration index (TII) value is the highest with the EU, indicating that the proposed FTA with the EU has the highest potential to increase intra-regional merchandise trade. “We believe that the India-EU FTA will definitely be a big step towards diversifying exports and increasing trade openness with a large bloc,” she added.

The note by Emkay Global Financial Services noted that average EU tariffs on Indian manufactured goods currently range between 6-10% (textiles/apparel at approximately 12%, footwear at 8-16%, and automobile components at 4-6%). Improving market access, facilitating visas, and enhancing mobility under a free trade agreement can serve as a multiplier for services exports. “On imports, lower tariffs on European capital goods, cars, wines and spirits could lead to higher imports over time, although this is likely to be offset by productivity gains and a deflationary drive through cheaper inputs and technology diffusion,” he added.

Clarity is required

However, industry and experts are awaiting more clarity on several issues including the mechanism for adjusting carbon borders and non-tariff barriers.

“India is pushing for its labour-intensive sectors, such as textiles and leather, to be exempt from customs duties. On the other hand, the European Union is demanding significant reductions in customs duties on cars, medical devices, wines and spirits, meat and poultry, and a strong intellectual property regime,” the Barclays report noted.

Srivastava noted that the deal also entails risks – particularly from non-tariff barriers, restrictions on services, and climate-related measures such as CBAM, which could weaken the benefits of tariff liberalization.

There are already concerns about the EU’s Generalized System of Preferences, which is effective from January 1, 2026 to December 31, 2028, and its impact on Indian exports. However, the Ministry of Commerce and Industry clarified that the new regulation affects only 2.66% of India’s exports to the EU.