NEW DELHI: In a monumental development for global trade, India and the European Union announced on Tuesday the successful conclusion of negotiations for a landmark free trade agreement (FTA), bringing to an end talks that commenced nearly two decades ago. This historic pact, often referred to as the "mother of all deals," represents India's 19th trade agreement and is poised to dramatically enhance exports to the 27-nation EU bloc while simultaneously reshaping competitive dynamics for numerous domestic industries.
A Strategic Agreement Amid Global Trade Turbulence
The timing of this agreement is particularly significant, as it arrives during a period of considerable disruption in global trade flows. These disruptions have been driven by high US tariffs, fragile supply chains, and escalating geopolitical tensions, including the ongoing Russia-Ukraine conflict. Currently, India faces steep tariffs from the United States, while the European Union also confronts the threat of increased American duties, making this bilateral pact a crucial strategic maneuver.
Comprehensive Scope of the FTA
Under the terms of the newly negotiated free trade agreement, duties will be substantially reduced on 99.5% of goods exported from India to the European Union. Key sectors benefiting from these cuts include seafood and footwear. In a reciprocal arrangement, India has committed to reducing or eliminating tariffs on 96.6% of goods imported from the EU. This includes phased reductions for European automobile manufacturers and alcohol producers, facilitating a more balanced trade relationship.
Once fully implemented, this pact will forge a combined market encompassing nearly 2 billion people, bridging the world's fourth-largest economy, India, with the second-largest economic bloc, the European Union. This integration is expected to foster unprecedented economic synergy and growth opportunities.
Major Beneficiaries of the Agreement
Indian apparel manufacturers and gems and jewellery exporters are positioned among the primary beneficiaries of this deal. The European Union will cut duties on these products to zero, providing a significant competitive edge. Additionally, domestic food producers will gain preferential access to the lucrative European market, opening new avenues for expansion.
However, the agreement also presents challenges for certain sectors. Indian automakers and liquor companies are anticipated to face intensified competition as lower import levies make European products more affordable in the Indian market. As businesses await further details, a clear picture emerges of the potential winners and losers.
Detailed Analysis of Sectoral Impacts
Big Winners: Apparel & Textiles
India secures immediate zero-duty access to a massive $263 billion European textile market. The government has confirmed that tariffs on textile imports will be eliminated without delay. CareEdge Ratings has described the deal as "critical" for enhancing competitiveness, projecting that India could increase its EU market share from 5% to 9%. This shift is estimated to add nearly $4.5 billion in annual exports over the medium term. Reflecting this optimism, textile stocks such as KPR Mill, Welspun Living, and Kitex Garments experienced strong gains following the announcement.
Leather & Footwear
Tariffs on leather and footwear have been dramatically reduced to zero from a previous rate of 17%, unlocking a $100 billion EU market for Indian exporters. This move is expected to significantly boost India's presence in these high-value segments.
Gems & Jewellery
The European Union has granted duty-free access to Indian gems and jewellery, a move hailed by industry leaders. Kirit Bhansali, chairman of the Gem & Jewellery Export Promotion Council, forecasted that bilateral trade could double to ₹910 billion within the next three years. He emphasized, "This timely pact will help Indian exporters salvage lost ground," noting a sharp decline in exports to the United States.
Food Products & Seafood
Indian exporters of shrimp, frozen fish, and value-added seafood products will obtain preferential access to the European market. Producers of tea, coffee, spices, grapes, and processed foods are also set to benefit. Importantly, safeguards remain in place to protect sensitive sectors such as dairy and poultry, ensuring domestic interests are not compromised.
Comprehensive Benefits for India
- Preferential access across 97% of tariff lines, covering 99.5% of trade value.
- Immediate duty elimination for labour-intensive sectors including textiles, leather, gems, and jewellery.
- Zero-duty entry for $33 billion worth of exports currently subject to EU tariffs ranging from 4% to 26%.
- Protection for sensitive sectors like dairy, cereals, and poultry.
Challenges and Competitive Pressures
Liquor Makers Face Stiff Competition
India has implemented sharp reductions in tariffs on European alcohol products. Duties on wine have been lowered to 20%, spirits to 40% (down from as high as 150%), and beer to 50%. This adjustment is expected to heighten competition for Indian liquor firms. Karan Taurani of Elara Securities commented, "It's a negative for Indian liquormakers." Reflecting this sentiment, shares of Sula Vineyards, United Breweries, and Radico Khaitan declined following the announcement.
Indian Carmakers Under Pressure
The agreement permits up to 250,000 European vehicles to enter India at preferential rates, with tariffs gradually decreasing from 110% to as low as 10%. Additionally, duties on auto components will be eliminated over a period of 5 to 10 years. Consequently, shares of Mahindra & Mahindra and Tata Motors Passenger Vehicles experienced a downturn after the news broke.
Global Context and Strategic Implications
Trade Without Trump: Reducing Dependence
The "mother of all deals" emerges at a critical juncture for the global economy, which has been unsettled by the unpredictable trade and tariff policies of US President Donald Trump. This landmark India-EU trade pact is anticipated to diminish both sides' reliance on the United States and China. Negotiations, which began nearly two decades ago, gained renewed momentum after tariffs imposed by the Trump administration on Indian and European goods disrupted global trade flows.
The Trump administration has openly criticized the agreement. US Treasury Secretary Scott Bessent alleged that Europe was effectively bankrolling the Russia-Ukraine war by purchasing energy products routed through India. He argued that European countries were undermining their own security by importing refined fuel from India that originates from Russian crude oil, while Washington imposed steep tariffs on Indian exports over New Delhi's energy ties with Moscow.
Bessent stated, "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." However, Commerce Minister Piyush Goyal has dismissed suggestions that US tariffs influenced the deal's progression, asserting, "I don't think we even discussed this."
Why This Deal Matters Profoundly
Signed after nearly two decades of rigorous negotiations, this agreement stands as India's most ambitious trade pact to date. It is set to fundamentally reshape supply chains, pricing power, and growth prospects across multiple sectors. Munjal Almoula, managing partner for Tax & Regulatory Advisory at BDO India, highlighted that "textiles, gems and jewellery, leather, pharma, and high-tech engineering" will derive substantial benefits from the deal.
India's goods trade with the European Union amounted to $136.5 billion in 2024-25, establishing the bloc as its largest trading partner. The free trade agreement is expected to be formally signed later this year, pending legal vetting and approval by the European Parliament. This historic accord not only marks a new chapter in India-EU relations but also signals a strategic realignment in global trade architecture.
