India and the EU have concluded discussions for a free trade agreement (FTA) that is being called the ‘mother of all deals’ by both sides. It’s a big breakthrough after 18 years of talks, and comes at a crucial juncture in the global economy which is reeling from unpredictable trade and tariff policies of US President Donald Trump. The trade deal is expected to be signed sometime this year after the legal framework is in place and the European Parliament agrees to it.The landmark India-EU trade deal that will help ease both sides’ dependence on the United States of America, and even China. The push to wrap up negotiations, which began nearly two decades ago, gathered pace after tariffs imposed by US President Donald Trump on Indian and European goods disrupted global trade flows. Prime Minister Narendra Modi on Tuesday described the India-European Union free trade agreement as a framework for shared prosperity that serves the broader global interest, saying the partnership with Europe would reinforce international stability at a time of growing uncertainty in the world order.
EU is India’s largest trading partner
He addressed a joint press conference with European Council President Antonio Costa and European Commission President Ursula von der Leyen following the conclusion of negotiations on the India-EU FTA and the summit meeting between the two sides.Emphasising the significance of the pact, Modi said, “This is not just a trade agreement. It is a new blueprint for shared prosperity.” He noted that India has finalised the largest free trade agreement in its history, describing it as a landmark step that will open European markets to Indian farmers and small enterprises, generate fresh opportunities in manufacturing, and deepen collaboration across services sectors.The European Union is India’s biggest partner in merchandise trade, with two-way goods commerce at roughly $136 billion in the year ending March 2025, according to official figures. Services exports from India to the EU reached €37 billion in 2024, nearly doubling from €19 billion in 2019, as Indian technology firms and outsourcing companies have deepened their footprint across Europe. Commerce Minister Piyush Goyal has said that the agreement between India and the European Union is expected to come into force sometime in 2026.Addressing a special briefing during the visit of the Presidents of the European Council and the European Commission, Goyal said the agreement would now undergo expedited legal vetting. “Every agreement stands on its own legs, and this is a wonderful agreement. It’ll be taken up for a legal scrubbing on a fast track basis…We do hope that we should be able to celebrate the entry into force of this agreement within calendar 2026 itself,” he said.
US unhappy with India-EU trade deal
Ahead of the trade deal announcement, the Trump administration has expressed displeasure on the FTA. US Treasury Secretary Scott Bessent on Tuesday criticised the FTA, alleging that Europe was effectively bankrolling the Russia-Ukraine conflict by purchasing energy products routed through India.A senior official in President Donald Trump’s administration, Bessent argued that European countries were weakening their own security position by importing refined fuel from India that is derived from Russian crude oil. He contrasted this with Washington’s stance, which has imposed stiff tariffs on Indian exports over New Delhi’s energy dealings with Moscow.In an interview with ABC News, Bessent justified the Trump administration’s tariff measures, directly linking them to India’s purchases of Russian oil. “We have put 25 per cent tariffs on India for buying Russian oil. Guess what happened last week? The Europeans signed a trade deal with India,” he said.He went on to assert that the energy supply chain ultimately benefits Russia, stating, “And just to be clear again, the Russian oil goes into India, the refined products come out, and the Europeans buy the refined products. They are financing the war against themselves.”
Trump tariffs: India-US trade takes a hit
The US is among the largest markets for India’s exports and Trump’s 50% tariffs have had a major impact on its exports to America. At the start of this financial year, India’s exports to the US were $8.4 billion. They have now come down to $6.88 billion December. The decline has been drastic since August, when the 50% came into effect in a phased manner.In FY25 so, India’s total exports stood at roughly $825 billion, comprising about $438 billion in goods and $387 billion in services. Looking ahead to FY26, merchandise exports are expected to remain largely stagnant as global demand stays subdued and fresh tariff pressures from the United States weigh on shipments. Services exports, by contrast, are likely to show modest growth, edging beyond the $400 billion mark, according to an analysis by Global Trade Research Initiative (GTRI). Global trade conditions have worsened sharply. Under President Donald Trump, the United States has moved away from World Trade Organization norms, relying instead on aggressive unilateral tariffs. As a result, India’s exports to the US declined by nearly 21% between May and November 2025 amid a 50% tariff regime. Unless Washington withdraws the additional 25% levy tied to India’s purchases of Russian oil or reaches a bilateral trade agreement, shipments to India’s largest export destination could face further pressure.
India’s exports uncompetitive after 50% US tariffs
However, some resilience is evident. Even as exports to the US have dropped steeply, shipments to other markets increased by around 5.5% over the same period, signalling slow but steady diversification. Nevertheless, the US and the European Union continue to be India’s most critical export destinations, making disengagement neither practical nor desirable, says GTRI.
What’s special about the India-EU trade deal?
Once operational, around 93% of India’s exports are set to gain duty-free entry into European markets, while Indian consumers are likely to see lower prices on premium European imports such as luxury automobiles and wines.The agreement delivers exceptional access to the European market, covering over 99% of India’s exports by value. In addition to merchandise trade, it secures substantial openings in services, supported by a mobility framework that facilitates the smooth movement of skilled Indian professionals.
India EU FTA
The India-EU FTA is set to significantly strengthen labour-intensive industries, including textiles, apparel, leather, footwear, marine products, gems and jewellery, handicrafts, engineering goods and automobiles. Under the pact, tariffs of up to ten percent on nearly $33 billion worth of exports will be eliminated once the agreement comes into effect.The agreement would effectively create a combined market of nearly two billion people across India, the world’s fourth-largest economy, and the EU, the second-largest economic bloc globally.Together, India and the EU represent about 25% of global GDP and roughly one-third of world trade, estimated at around $11 trillion out of a global total of $33 trillion.For India, the agreement promises restored market access, tariff relief for labor-intensive exports, and new opportunities in services; for the EU, it offers scale, growth, and supply-chain diversification beyond China.
India EU FTA benefits explained
As Ajay Srivastava, founder of GTRI, notes, the India-EU trade deal is an example of ‘classic FTA economics at work’.“Because both economies specialise in different segments, tariff elimination works as a cost-reduction tool rather than a displacement shock. An India–EU FTA would thus deliver classic trade gains—higher volumes, deeper integration and stronger industrial competitiveness on both sides—at a moment when such economically rational trade arrangements are becoming increasingly rare,” says Ajay Srivastava.As GTRI notes, rather than competing with each other, the two economies occupy different positions within global value chains. India largely ships labour-intensive and processing-oriented products, while the EU specialises in capital equipment, sophisticated technologies and industrial intermediates.“This structural complementarity explains why an India–EU free trade agreement is likely to lower costs and expand trade rather than threaten domestic industry,” says GTRI.In FY2025, merchandise trade between the two sides crossed $136 billion, and reductions in tariffs would mainly ease input costs, strengthen value-chain linkages and boost trade volumes, delivering the conventional efficiency gains associated with such agreements for businesses and consumers alike.
Will India-EU FTA offset impact of Trump tariffs?
Diversification of product basket and geographies is key to mitigating the impact of US tariffs, say experts. So will the India-EU FTA deliver on that front?In a report, Emkay Research says, “…India–EU FTA comes at a crucial juncture—of global trade fragmentation, rising protectionism, US–India trade frictions, and heightened global uncertainty. The deal could act as an effective counter-cyclical buffer by improving India’s export participation in global value chains, expanding market access, and supporting supply-chain diversification.”The EU accounts for around 17% of India’s goods exports. Emkay Research estimates that a bilateral alignment could lift India’s exports to the EU by around $50 billion by 2031, led by medium-tech manufacturing.
Offsetting impact of Trump tariffs
Agneshwar Sen, Trade Policy Leader at EY India tells TOI, “The India – EU FTA’s value lies beyond tariffs. It will provide predictable market access, regulatory cooperation, and investment linkages. While strengthening Indian competitiveness, it may partially mitigate the trade-distorting effects of unilateral tariff actions elsewhere.”Sen points out that the tariff concessions, while an important element under the India–EU FTA, will not provide a like-for-like offset to the adverse impact of the recent US tariff increase.“They can certainly and meaningfully cushion the shock in some sectors, but given the differences in domestic regulations in the EU as compared to the US, wholesale redirection of trade from one market to the other is unlikely to happen. The US remains India’s largest single-country export market, nonetheless deeper access to the EU—especially in engineering goods, chemicals, textiles, auto components and new-age sectors—will help diversify demand and stabilise export growth,” he adds.Gulzar Didwania, Partner at Deloitte India believes that the deal is likely to open up the EU market for India for various sectors such as textile, gems and jewellery, auto components etc. “India exports a significant amount of these items to the US which has been impacted due to 50% tariffs. While the US is India’s largest trading partner so far, this deal is likely to offset some amount of impact created by US tariffs on Indian exports,” he tells TOI.Gautam Khattar, Principal at Price Waterhouse & Co LLP says, “The EU trade deal offers a critical window for Indian exporters to diversify and de-risk supply chains. Gaining preferential access to a market of this scale is a massive catalyst for labour-intensive sectors like textiles and leather.” “In an era of rapid geopolitical shifts, this isn’t just a trade agreement, it’s a strategic expansion of India’s global footprint,” he tells TOI.However, Ajay Srivastava of GTRI strikes a note of caution: “The first set of tariff cuts under the India-EU FTA may kick in after at least one year. But India’s exports to the US are already down by 21% between May and Dec 2025. We hope that a US deal may happen soon, reducing US tariffs from 50 to 15%,” he tells TOI.India is confronted with one of the most demanding global trade backdrops in recent memory. A surge in protectionist policies across developed economies, softening worldwide demand and the emergence of climate-related trade restrictions are all coming at a time when India is seeking to accelerate export growth. Instead of expansion, the near-term focus is increasingly on preserving existing market share.With this pact, the European Union becomes India’s 22nd free trade agreement partner. Since 2014, the NDA government has concluded trade agreements with Mauritius, the UAE, the UK, EFTA, Oman and Australia, and has announced deals with New Zealand. In 2025, India signed trade agreements with Oman and the UK and confirmed the conclusion of negotiations with New Zealand.
