The Mother of all deals: Why India-EU Free Trade Agreement could be the biggest revolution in the history of modern trade.

Introduction

Two billion people, a quarter of global GDP, a trade relationship worth 120 billion euros in goods; these are formidable foundations of a pact that EU Commission President Ursula von der Leyen has called the “mother of all deals.” The India- EU FTA has been finalized  during a time of worldwide instability, amid US trade tensions, and emerges as a strategic counterbalance and a mutual declaration of economic sovereignty in a period of trade used as a weapon.

Forged from necessity, the agreement responds to separate but converging emergencies; Europe’s quest for resilient supply chains away from China and the US, and India’s imperative to secure its place in the global economic order. The agreement’s enduring legacy, however, will be determined not by its visionary scale but by its practical implementation. Successfully navigating the final hurdles from operationalizing carbon border mechanisms and data-sharing protocols to managing sensitive agricultural safeguards will now be the critical test for two large democracies,whether they can turn the necessity into a durable partnership, creating a new model of trade in a time of fractured global order.

EU Economic Dynamics: The Logic of Strategic Self-Reliance

The EU’s pursuit of this agreement is a strategic response to an era of economic uncertainty and geopolitical change. The bloc’s core principle of “open strategic autonomy” has become an urgent priority, driven by pandemic shocks, war in Ukraine, over dependence on China- evidenced by a trade deficit of €305.8 billion and recent volatile trade tensions with the US.  In a stark example, the European Parliament recently suspended approval of a key trade deal after President Trump’s threats over Greenland and tariffs.

In this new global picture, India is no longer seen as just another big market, but an indispensable partner for resilient and diversified supply chains- a shift away from over-reliance towards balanced economic architecture.

Quantitative metrics validates this strategic realignment:

• Structural Trade Asymmetry with India:

  • The EU serves as India's principal trading partner, with bilateral goods trade valued at €120 billion (2024).

  • Conversely, India ranks as only the EU's 9th largest trading partner, indicating significant latent potential for market expansion.

    
    

• Accelerated Investment Trajectory:

  • EU Foreign Direct Investment (FDI) stock in India has increased from €82.3 billion (2019) to €140.1 billion (2023), reflecting deepening capital integration.

    
    

• Established Commercial Presence:

  • Over 6,000 European firms maintain operational footprints within India.

• Primary Market Access Barriers:

  • Automotive Imports: Subject to prohibitive tariffs approximating 100%.

  • Spirits and Wines: Face import duties as high as 150%.

    
    

The FTA aims to formalize this partnership by eliminating major tariffs and creating new rules for the digital and green economies.

Indian economic dynamics: The imperative of Transformative Growth

India enters the FTA talks with dual realities : a massive, fast-growing consumer market and persistent economic challenges. This dual leverage allowed India to negotiate as an equal partner with bargaining power, not merely as a potential beneficiary.

India’s position and objectives are framed by following data:

• EU-India Bilateral Trade & Investment:

  • Trade in Services (2023): €59.7 billion.

    
    

• India’s Domestic Export Momentum:

  • Total Exports (Merchandise & Services): US$ 634.26 Billion, showing 4.33% growth.

    
    

• Primary Negotiation Objectives:

  • Secure enhanced market access for competitive sectors where it shows strong growth: Electronics, Pharmaceuticals, and Engineering Goods.

  • Guarantee mobility for skilled professionals (Mode 4 services), leveraging its services trade surplus.

    
    

• Key Defensive Concerns:

  • Protect sensitive sectors employing millions: Agriculture and Dairy.

  • Preserve regulatory space for its vast base of Micro, Small, and Medium Enterprises (MSMEs).

    
    

India’s strategy is to use its domestic market to secure technology transfer, stable foreign investment and sustainable growth.

Trade Deal history & Current Stage

The pathway to this moment has been a long story of diplomatic collapse and patient revival. Started in 2007 amidst soaring optimism, talks for a complete trade and investment deal went through 15 exhausting rounds before finally breaking down in 2013. EU’s demands on wines, alcohol and dairy against India’s equally firm demand in meaningful services liberalization created an “ambition gap” that brought the entire process to a halt for almost 10 years. Although during this period bilateral trade grew naturally, strategic coordination stagnated in the shadow of untapped potential.

The year 2021 saw revival of the deal, officially restarted in 2022, ignited by a transformed geopolitical landscape- shared anxieties over assertive China, global supply chain fragilities exposed by Russia-Ukraine war and a comprehensive understanding of consequences of economic over- concentration. In early 2026, it is also the shifting geopolitical realities that Brussels is accelerating its diversification, while India is positioning itself as a central node in restructured global supply chains.

Negotiations of the FTA were concluded on 27 January 2026 and separate negotiations for an Investment Protection Agreement and an Agreement on Geographical Indications (GIs) was launched. Both sides worked to resolve their remaining differences, even as negotiations went down to the wire on politically sensitive issues such as automobiles,steel and regulatory barriers.Negotiators have also addressed sensitive industrial sectors cautiously to avoid sudden disruptions to domestic producers.

Certain farm and dairy products have been excluded entirely from the agreement, reflecting India’s longstanding concerns about safeguarding the livelihoods of millions of small farmers.The agreement is expected to become operational within a year as approval from the European Parliament will be required before the pact can be implemented. The agreement is not designed just for today’s trade, but for tomorrow’s digital driven economy.

The 27^th January Summit

All converging strategic imperatives, economic forces and negotiating histories culminated together at the 16^th India- EU summit in New Delhi on January 27, 2026. With EU Commission President Ursula Von Der Leyen and European Council President Antonio Costa attending India’s Republic Day as main guests, the scene was carefully set for a major geopolitical event.

The summit  unveiled a new and ambitious Joint Comprehensive Strategic Agenda and decisively, announced the political conclusion of FTA.The finalized agreement grants the EU privileged access to India’s market of 1.45 billion people and is projected to double EU goods exports to India by 2032. It eliminates or reduces tariffs on over 96% of EU goods exports, including prohibitive duties on key agri-food products such as wine, olive oil, and chocolate, saving European exporters an estimated €4 billion annually.

Specifically for the automotive sector, import duties on European luxury electric vehicles have been slashed to 10-15%, positioning India as a pivotal future production base for the EU’s automotive industry. catalysing India’s rise as an important production base for the EU’s automobile industry. This economic progress runs parallel to a breakthrough in defence relations. Lisa Musiol, head of EU affairs at the International Crisis Group in Brussels, said India is the first country with close political and military ties to Moscow to strike a key defence partnership with the EU. This could, over time, open the door for New Delhi to tap parts of the EU's SAFE (Security Action for Europe) loan facility for common defence procurement.

This diplomatic milestone underscores the central goal of the entire endeavour: a high-stakes political commitment to overcome technical hurdles, driven by the conviction articulated by EU High Representative Joseph Borell that “with the world facing major geopolitical challenges, India remains a crucial partner, strategic partner for the European Union. Our ability to strategically navigate the 21st century and work together on key priorities will bring great benefits to both Europe and India, and the rest of the world.”The summit has thus transformed a strategic vision into a binding blueprint for shared prosperity and resilience in a fractured world.

Predicted Post-deal benefits of the India-E.U. Free Trade Agreement

India and the European Union together are home to more than 2 billion people, around 23 percent of the global population estimate. Therefore, any agreements or deals between the two sides are bound to grab international attention. India–E.U. The Free Trade Agreement, signed between India and the European Union on 27th January this year, dubbed the “Mother of all Trade Deals” by the president of the European Union, Ursula von der Leyen, and Commerce Minister Piyush Goyal, promises lucrative benefits for both parties.

The Free Trade Agreement (FTA) provides easier access for Indian exports to the EU market, particularly for labour-intensive products such as textiles, leather, pharmaceuticals, electrical machinery, and automobiles, for which duties are currently high. Services and digital trade, e.g., IT and professional services, are also expected to gain from aligned standards and reduced barriers, thereby benefiting India’s strong services sector. Broader economic engagement built into the deal could help foster deeper cooperation in technology, sustainability, and supply-chain integration beyond tariffs alone. The EU also benefits from the agreement, e.g., easier access for European-made machinery, aircraft, and chemicals, and the deal aims to expand trade flows, mutually boosting two-way investment and economic ties.

Tariff control

The India-EU Free Trade Agreement comes at a geopolitically sensitive time, when the United States has threatened to impose sanctions on most countries, especially South Asian nations. The FTA provides relief to both India and the European Union. Still, it is a game-changing move for India, especially after being hit with 50% tariffs by the Trump Administration in August last year.

A key pillar of the India–EU trade deal is tariff control on exports, which essentially reduces or eliminates customs duties on traded goods.

FTAs work by gradually reducing tariffs on agreed products to zero or low levels, replacing higher Most Favoured Nation (MFN) tariffs. For Indian exporters, this means that imported goods into the EU from India, such as garments, leather products, machinery, and pharmaceuticals, will face significantly lower duties than the current MFN rates. Lower tariffs make Indian goods more price-competitive in the European market compared to competitors that still pay full MFN tariffs. The FTA will be mutually beneficial for the European Union, as EU products entering India, particularly automobiles, will face reduced duties from 40 to 10 percent, negotiated under the FTA, further opening India’s market to EU capital goods and automobiles. This supports the Indian industry by lowering input costs and facilitating access to advanced technologies. 

Deepening Engagements with the European Union

The India–EU trade deal reflects deepening engagement between New Delhi and Europe across economic, strategic, and geopolitical dimensions. After years of negotiation, both sides have finalized what officials term a “historic” free trade agreement, indicating a mutual desire to strengthen ties amid rising global trade tensions and shifting geopolitics. This engagement is more than tariff negotiation.

The EU, amid recent tussles with the United States, is keen to diversify supply chains and reduce its over-dependence on the U.S and East Asia, especially China. At the same time, India seeks stable access to large, high-income markets and integration into global value chains. Public statements from EU leadership, including the European Commission President Ursula von der Leyen, highlight strategic cooperation on trade, technology, mobility, and sustainability alongside economic integration. Dialogues now increasingly include regulatory cooperation, investment facilitation, and, potentially, services and professional mobility, areas that go beyond traditional tariff deals and set the framework for sustained economic interaction.

A distinct feature of the upcoming trade deal is its emphasis on defence and security-related negotiations, with a particular focus on technology transfer (ToT). The talks also address non-tariff measures, including standards, intellectual property rights, and environmental compliance, indicating a comprehensive approach to bilateral economic engagement. 

What's in it for Indian Manufacturers?

For Indian manufacturers, the India–EU FTA deal promises relief on multiple fronts. In the current scenario, many Indian exporters face elevated tariff barriers after the Trump Administration imposed 50 percent tariffs, and the E.U. last year imposed secondary tariffs following India’s purchase of Russian oil amid the ongoing Russia-Ukraine War, which increased duties on a broad range of Indian goods. Under the new trade agreement, these tariffs would be significantly reduced or eliminated on thousands of products, restoring or enhancing the competitiveness of Indian-manufactured goods in the European market.

This reduction in tariff costs directly improves price competitiveness against rivals such as Bangladesh and Vietnam, especially in labour-intensive industries such as textiles, leather, footwear, and electrical equipment. Tariff relief also lowers export costs, which can translate into higher margins or reinvestment into capacity expansion and quality upgrades, thus boosting production competitiveness.

The India–EU FTA also acts as a strategic buffer against the adverse effects of tariffs imposed or threatened by the Trump administration. Trump’s tariff policies, characterised by unilateral tariff hikes, protectionism, and the weaponisation of trade, disproportionately hurt export-oriented Indian manufacturers, especially in the steel, aluminium, engineering goods, chemicals, and petroleum industries. By deepening access to the EU market, the FTA helps Indian manufacturers diversify export destinations, reducing over-dependence on the US market.

This diversification lowers vulnerability to sudden tariff shocks and political trade decisions emanating from Washington. Moreover, stable EU demand can partially offset revenue losses arising from restricted US access. In strategic terms, the FTA anchors India within a rules-based, predictable trade regime, in contrast to the uncertainty of US protectionism.

For Indian manufacturers, this means reduced exposure to tariff volatility, greater resilience against geopolitical trade disruptions, and a more balanced export portfolio in an increasingly fragmented global trading system. Furthermore, access to cheaper EU capital goods and intermediate inputs at reduced tariffs can help Indian manufacturers modernize production lines, adopt new technologies, and integrate more deeply into international value chains. In sectors like pharmaceuticals and auto components, predictable low tariffs reduce the uncertainty that previously deterred market entry or expansion. Overall, tariff control under the trade deal provides Indian manufacturers a viable pathway to scale up exports, enhance global market presence, and absorb global shocks more effectively. 

Geopolitics and Strategic Importance

India invited the President of the European Council, H.E. Mr. António Luís Santos da Costa, and the President of the European Commission, H.E. Ms. Ursula von der Leyen, for a State Visit from 25 to 27 January 2026. This visit shows that both sides see the relationship as important during this time of turbulence. Initiatives such as the Trade and Technology Council, the Global Gateway, IMEC, and the conclusion of EU-India FTA negotiations reflect deepening institutional alignment between India and the EU.

​The January 2026 Summit marks a major turning point, with both sides officially announcing the conclusion of the Free Trade Agreement (FTA) negotiations on January 27. This deal, often called the "mother of all deals," aims to make trading easier by cutting high taxes on goods. For example, India is expected to lower import taxes on European cars to as low as 110% to 40% (eventually 10% for unspecified quotes), while the EU will provide better market access for Indian textiles and jewellery. To honour this partnership, a historic military representation from the European Union, including personnel from EU Naval Operations ATALANTA and ASPIDES, participated in the Republic Day parade at Kartavya Path yesterday (January 26, 2026).  

In January 2026, External Affairs Minister Dr. S. Jaishankar made a historic appearance at the Weimar Triangle, marking the first time a representative from the Global South and the non-EU world was invited to participate in this forum. Similarly, in September 2025, the EU Political and Security Committee, representing all 27 member states, made its first-ever visit to Asia, holding high-level meetings in India with the Foreign Secretary, Deputy NSA, and Secretary (West) to advance strategic dialogue. This was the first time all EU countries sent this committee to Asia together.

​In addition, Joint naval exercises between EU and India have strengthened maritime security cooperation, including in the Indian Ocean in June 2025, the Gulf of Guinea in October 2023, and the Gulf of Aden in June 2021, alongside collaborative escort operations for humanitarian assistance. These are military training exercises where both navies work together in different ocean areas. This commitment builds on the strategic direction given by Prime Minister, Shri Narendra Modi and President of the European Commission, Ms. Ursula von der Leyen during the landmark visit of the EU College of Commissioners to New Delhi in February 2025. During the 2026 visit, a new Security and Defence Partnership was also launched, further uniting the two regions as stable partners in a changing world. The EU remains India's largest trading partner for goods, with bilateral trade reaching approximately $136 billion in 2024-25.

Regulatory Alignment and Digital Trade

Shri Piyush Goyal, Minister of Commerce and Industry of India, and Mr. Maroš Šefčovič, European Commissioner for Trade and Economic Security, engaged in dialogue to reaffirm their shared resolve to conclude the India-European Union Free Trade Agreement by the end of 2025. A senior team of negotiators from the European Union visited New Delhi from 3 to 7 November 2025 for negotiations with Indian counterparts, with deliberations covering goods, services, investment, trade, sustainable development, rules of origin, and technical trade barriers. These teams discuss how to reduce barriers that make trade difficult.

The negotiations gained momentum with the virtual meeting between Commerce and Industry Minister, Mr. Piyush Goyal and EU's Commissioner for Trade and Economic Security, H.E. Maroš Šefčovič and Agriculture and Food Commissioner, H.E Christophe Hansen on 3rd November 2025. Commerce Secretary Shri Rajesh Agrawal held detailed meetings with Director-General for Trade, European Commission Ms. Sabine Weyand, during two-day stocktake meetings held on 5 to 6 November 2025 in New Delhi to review key outstanding issues.

After subsequent meetings and negotiations, India emphasized that meaningful progress in trade negotiations requires equal focus on non-tariff barriers, as well. To solve the problem of non-tariff barriers, the two regions have agreed on a new "Regulatory Cooperation" framework. This helps Indian and European agencies trust each other’s safety standards, so products don’t get stuck in port for extra inspections.  

As of January 2026, these efforts have reached a historic milestone. During the India-EU Summit in New Delhi, both sides announced the successful conclusion of the agreement. They also made progress on "Digital Trade”, making it easier for IT companies to work across borders while keeping data safe. While some complex rules, like the EU’s Carbon Border Adjustment Mechanism (CBAM), are still being fine-tuned through a dedicated transition dialogue, this progress means that for the first time in nearly 20 years, a final deal is within reach to make shopping and doing business much cheaper and faster. 

Investment, Supply Chains, and Technology

H.E. Maroš Šefčovič, Commissioner for Trade and Economic Security, European Union, observed that India and the EU are negotiating a ground-breaking Free Trade Agreement with unprecedented momentum, describing the ongoing discussions as some of the most intensive and constructive ever held between the two partners. He noted that while negotiations on an FTA had been attempted in the past, never before had the process reached such a level of seriousness, mutual trust, and shared ambition. 

The India-EU FTA aspires to reflect the evolving realities of global commerce by supporting digital transition, promoting diversified and resilient supply chains. Supply chains are the networks through which products move from raw materials to finished goods.

To make economic vitality a reality, the January 2026 Summit introduced a new "Mobility and Migration" framework. This will make it much easier for Indian professionals, researchers, and students to move to Europe for work and study. Shri Goyal underlined that the India-EU FTA will be a comprehensive economic partnership with strategic elements, with India benefiting from Europe's technology and innovation, while the EU will benefit from India's growth story, scale, and resilience. The EU remains India's largest trading partner for goods, with bilateral trade reaching approximately $136 billion in 2024-25. 

Sustainability and Inclusive Growth

Both sides expressed optimism that the agreement will serve as a transformative pillar of the broader India-EU strategic partnership, enhancing market access, supporting regulatory cooperation, and fostering innovation and competitiveness on both sides. Market access is measured by how easily businesses can sell domestic products in another country. The high-level engagement underscores the strategic importance both partners attach to building a commercially meaningful, mutually beneficial, balanced, and a fair trade partnership that supports economic resilience and inclusive growth. 

Shri Goyal underlined that the India-EU FTA will be a comprehensive economic partnership with strategic elements, with India benefiting from Europe's technology and innovation, while the EU will benefit from India's growth story, scale, and resilience. Both sides noted with satisfaction the substantive progress made across several negotiating areas and agreed to sustain the positive momentum, with discussions helping narrow divergences and common understanding reached on many issues. 

A major highlight of the 2026 Summit is the Sustainability and Green Transition chapter. This ensures that while we trade more, we also protect the planet. India and the EU are now working together on green hydrogen and solar energy, making sure that new trade rules help both regions reach their climate goals. Energy and climate cooperation forms a central pillar of the India-EU partnership. For context on India's European agreements, the India-EFTA (Switzerland, Norway, Iceland, and Liechtenstein) Trade and Economic Partnership Agreement (TEPA) came into force on 1 October 2025.  TEPA strikes a balance between ambition and prudence, with EFTA offering tariff concessions on 92.2% of tariff lines, covering 99.6% of India's exports.

Way Forward:

Moving forward, the India-EU partnership is shifting from a decade of negotiations to a decade of cooperation. This is all centered around a new plan called the Towards 2030: Strategic Agenda, which was just announced at the New Delhi Summit. The first big step is to finalize the "mother of all deals". This will make it much cheaper for people to buy things like European cars and for Indian businesses to sell clothes and jewellery in Europe. At the same time, a new Security and Defence Partnership has been launched, marking the first such overarching framework between India and the EU. 

Beyond these, this deal also invites several long-term plans targeting several areas that will benefit everyday lives, such as: In Agriculture, the focus is on smart farming using European technology to help Indian farmers grow high-quality, organic produce that meets strict EU safety standards. In Space and Technology, ISRO and the European Space Agency are planning joint missions, while new rules for Artificial Intelligence ensure that tech is used safely for public services like healthcare. It is effective to consider that the current EU-India roadmap ensures both regions remain stable, cooperative, green, secure and self-reliant through the upcoming decades.