On January 27, 2026, the formal signing of the India–European Union (EU) Free Trade Agreement (FTA) in New Delhi marked the culmination of nearly two decades of diplomatic stagnation. Characterising the accord as the “Mother of all Deals”, European Commission President Ursula von der Leyen described it as “only the beginning”, signalling the FTA as a foundation for a broader and deeper economic engagement. Formal negotiations between India and the European Union on a Bilateral Trade and Investment Agreement (BTIA) were launched in 2007 in Brussels. Unresolved divergences over market access, tariff reductions on automobiles, agricultural products, pharmaceuticals, services, and public procurement led to the suspension of the BTIA. In 2022, the EU relaunched negotiations on an FTA with India, alongside talks on an Investment Protection Agreement and Geographical Indications. Together, these renewed efforts led to the 2026 India–EU FTA.
Bilateral merchandise trade between India and the EU has followed a sustained expansion trajectory, reaching approximately ₹11.5 lakh crore ($136.54 billion) in 2024-25. Of this, Indian exports accounted for nearly ₹6.4 lakh crore ($75.85 billion), while India–EU trade in services stood at ₹7.2 lakh crore ($83.10 billion) in 2024. However, the sudden momentum that pushed both India and the EU to find common economic ground is shaped less by trade volume than by global turbulence. Diversifying trade partnerships has become a strategic necessity for India amid uncertainties in its trade relationship with the United States. Meanwhile, a geopolitically unsettled EU, seeking strategic autonomy amid volatile transatlantic ties, is also compelled to secure additional trade opportunities. President Donald Trump’s renewed threat of a trade war with European countries, including over Greenland, has further reinforced this urgency.
Market Access: Slashing Tariffs and Industrial Upgrades
According to India’s Department of Commerce, India has extended a comprehensive offer by liberalising 92.1% of its tariff lines, covering 97.5% of EU exports. Of these, 49.6% will see immediate duty elimination, with the remainder phased out over a ten-year horizon. The deal is expected to benefit European automakers such as Volkswagen, Renault, Mercedes-Benz, and BMW, as New Delhi slashes tariffs on cars from 110% to just 10%. This is particularly significant for the EU given that India is now the world’s third-largest car market by sales, after the United States and China.
The agreement reduces tariffs on EU exports of processed agricultural products, including olive oil, wine, and products such as bread and confectionery. Further, New Delhi lowers tariffs on alcoholic beverages, such as wine, from 150% to 75%, and has agreed to reduce them further, eventually to between 20% and 40%. Additionally, the deal is expected to lower tariffs on high-value healthcare equipment, including surgical instruments, diagnostic and ophthalmic equipment, and laboratory tools.
Sensitive sectors such as dairy, cereals, poultry, soymeal, and certain fruits and vegetables remain safeguarded under the agreement. The FTA also includes provisions on geographical indications (GIs) to protect region-specific products. However, GI tags remain underutilised in India, with around 550 registered indications, compared to a far more commercially leveraged GI ecosystem in Europe.
On the export front, the elimination of EU tariffs, which previously ranged from 4% to 26%, will provide immediate zero-duty access for over ₹2.87 lakh crore ($33 billion) worth of Indian exports. This is particularly important for sectors such as textiles, apparel, leather and footwear, chemicals, plastics and rubber, sports goods, toys, gems and jewellery, and marine products. India’s small businesses, mainly in textiles and leather, will compete on a level playing field with countries such as Vietnam and Bangladesh. India is also expected to benefit from reduced duties on EU machinery, enabling factory upgrades at a lower cost.
The agreement is expected to bring opportunities for Indian professionals across 54 sub-sectors, including IT, R&D, and higher education. One factor that enabled negotiators to bypass earlier deadlocks was the decision to shift the issue of labour mobility to a separate negotiating track. Previously, the UK had objected to India’s demands for expanded short-term mobility for skilled professionals. Political groups within the European Parliament have since accepted this agreement.
The EU, however, will maintain its tariffs on sensitive products such as beef, sugar, chicken meat, bananas, honey, milk powder, soft wheat, garlic and ethanol. It will also retain its science-based standards and impact assessment criteria for all imports from India under the agreement.
The Regulatory Frontier
The FTA establishes a framework for the protection and enforcement of intellectual property (IP) rights, including statutory safeguards for copyrights, trade marks, trade secrets, designs, and variety rights. By aligning regulatory practices with global IP norms, the agreement is expected to reduce transaction costs emerging from legal fragmentation.
However, though the FTA removes standard tariffs on most industrial goods, it offers no relief to Indian companies affected by the EU’s Carbon Border Adjustment Mechanism (CBAM). Carbon-intensive sectors such as iron and steel, aluminium, cement, and fertilisers will continue to face additional costs, significantly affecting India’s exports. The iron and steel industry accounts for 90% of India’s CBAM-exposed exports to the EU. India has stated that it will seek flexibilities on the carbon tax regime if they are granted to any third country. Furthermore, the EU agreed to support India’s efforts to reduce greenhouse gas emissions with a €500 million (₹53,285 crore) Green Transition Assistance package.
What Lies Ahead
The 2026 India–EU FTA transcends the boundaries of traditional trade agreements at a time of economic uncertainty and geopolitical flux. Before entering into force, it must be ratified by EU member states, the European Parliament, and the Indian Cabinet. While the promise of greater competition, modernised supply chains, and higher-quality products at lower prices appears attractive, the agreement has triggered strong domestic opposition, particularly from Indian farmers’ organisations. The Samyukta Kisan Morcha (SKM) has described the FTA as an “economic colonisation blueprint”, warning that the rapid elimination of tariffs on European goods, particularly in the processed food sector, could severely impact domestic agricultural production and small farmers.
Despite domestic anxieties, the FTA remains a strategic necessity for both parties to mitigate overdependence on a single-source supply chain and secure their respective strategic autonomy. The agreement secures India’s position as a reliable alternative manufacturing hub. The true distribution of gains, however, will only become clear through long-term observation and assessment as the agreement unfolds within the evolving landscape of international political economy.