Historic India-EU Trade Deal Reaches Final Stage After 18 Years
India and the European Union stand ready to finalize a landmark trade agreement. This deal has taken almost two decades to negotiate. Commerce Minister Piyush Goyal recently described the proposed free trade agreement in dramatic terms. He called it the 'mother of all deals'.
'I have completed seven deals so far. All with developed economies. This one will be the mother of all,' Goyal stated recently.
Long-Awaited Agreement Nears Completion
Negotiations have entered their final phase after approximately 18 years. A formal signing ceremony is expected around January 26-27. Senior European Union leaders will visit India during this period. The trade deal announcement will likely occur at the 16th India-EU Summit in New Delhi.
The agreement now carries the official title India-EU Free Trade Agreement. This replaces the earlier Broad-based Trade and Investment Agreement label used since talks began in 2007.
Significance for India's Trade Landscape
If successfully concluded, this would become India's ninth trade agreement in just four years. It joins a growing list that includes partnerships with:
- Mauritius
- The United Arab Emirates
- Australia
- New Zealand
- Oman
- The EFTA bloc
- The United Kingdom
- Partners under the Indo-Pacific Economic Framework
Once finalized, this pact would represent India's largest free trade agreement. It covers both economic scale and regulatory scope. The agreement offers preferential access to all 27 EU member states through a single framework. The European Union functions as a customs union.
Economic Benefits for India
The Global Trade Research Initiative conducted an analysis of the proposed agreement. According to GTRI, this deal opens doors to one of the world's wealthiest economic blocs. The European Union boasts an estimated GDP between €18 and €22 trillion. Its market includes approximately 450 million high-income consumers.
GTRI makes an important observation. The India-EU free trade agreement approaches completion not because old differences disappeared. Instead, changing geopolitical realities forced both sides toward more pragmatic approaches.
The timing holds particular significance considering ongoing trade tensions. Former US President Donald Trump unleashed a trade war. The European Union now faces fresh 10% tariffs from the United States. These could potentially increase to 25%. India already confronts 50% tariffs on exports to America.
Current Trade Dynamics and Potential Gains
During FY2025, India exported goods worth about $76 billion to the European Union. Imports from the EU totaled roughly $61 billion. This resulted in a trade surplus for India.
However, the European Union withdrew its Generalised System of Preferences in 2023. This action weakened competitiveness for several Indian exports. Average EU tariffs on Indian goods remain relatively modest at approximately 3.8 percent. This applies to exports of $75.9 billion in FY2025.
Labor-intensive sectors face higher duties. Textiles and apparel encounter tariffs close to 10 percent. Removing these tariffs would deliver clear export advantages.
'An FTA would restore lost market access,' says GTRI founder Ajay Srivastava. 'It would lower tariffs on key exports like garments, pharmaceuticals, steel, petroleum products and machinery. This would help Indian firms better absorb shocks from higher U.S. tariffs.'
Expanded market opening in services represents another crucial benefit. This particularly applies to IT and other skill-driven segments. Such access would allow India to capitalize on its substantial talent base. It could grow services exports to Europe while reducing reliance on the American market.
Negotiation Challenges and Key Issues
Negotiations cover a wide and complex agenda. Goods and services remain at the core of unresolved differences. The European Union presses India to eliminate tariffs on over 95% of imports. New Delhi shows willingness to approach 90%, while keeping agriculture and dairy outside the agreement's scope.
India stands to gain significantly from improved access for labor-intensive exports. These include textiles, garments, leather and auto components. These products currently face higher EU tariffs than competitors face.
In services, India pushes back against EU requirements. These include local presence mandates, high salary thresholds and restrictions on remote delivery. India seeks data adequacy status, easier visas, social security coordination and qualification recognition.
The European Union demands greater access to India's financial, legal and banking sectors. It also seeks commitments on data protection.
The Carbon Border Adjustment Mechanism Challenge
Resolving the Carbon Border Adjustment Mechanism issue represents a priority for India. CBAM threatens to dilute gains from any tariff reduction. The European Union's Carbon Border Adjustment Mechanism already applies to products like steel and aluminium.
This mechanism effectively imposes additional charges on Indian exports. This occurs even if customs duties disappear under the free trade agreement. The impact proves particularly severe for micro, small and medium enterprises.
MSMEs face high compliance costs and complex disclosure obligations. They risk penalties based on default emissions values that may overstate actual carbon intensity.
Non-Tariff Barriers and Export Challenges
Beyond tariffs, Indian exporters encounter extensive non-tariff barriers in the European Union. These often erode benefits from market opening. Challenges include:
- Delays in pharmaceutical approvals
- Strict sanitary and phytosanitary requirements affecting food and agricultural exports like buffalo meat
- Intricate testing, certification and conformity-assessment procedures
Agricultural products face particular scrutiny. Basmati rice, spices and tea frequently encounter rejections or intensified inspections. This follows sharp reductions in permissible pesticide residue limits. Seafood exports face higher sampling rates due to concerns about antibiotic use.
Benefits for the European Union
GTRI notes that for the European Union, a trade pact with India offers access to scale, growth and sustained demand. These elements grow increasingly scarce within Europe itself. India represents one of the fastest-growing major economies globally.
With an economy of about $4.2 trillion and a population of 1.4 billion, India remains shielded by relatively high tariff and regulatory barriers. European exports to India face significantly steeper obstacles. A weighted average tariff of roughly 9.3 percent applies to shipments worth $60.7 billion.
Certain sectors encounter particularly heavy duties:
- Automobiles and components at about 35.5 percent
- Plastics at 10.4 percent
- Chemicals and pharmaceuticals at around 9.9 percent
These elevated tariffs raise entry costs for European firms. Lowering these barriers would substantially improve market access. A free trade agreement would create sizable opportunities for European exporters. These include aircraft, machinery, chemicals and other high-value manufactured products.
The agreement would also broaden access in services, public procurement and investment. Beyond trade, deeper economic engagement with India supports the European Union's strategic aims. These include diversifying supply chains, reducing excessive dependence on China, and establishing a long-term economic and geopolitical foothold in Asia's fastest-growing large economy.
Potential Impact and Final Considerations
According to GTRI analysis, the India-EU Free Trade Agreement could reshape India's trade relationship with Europe. It might anchor long-term export growth, investment flows, and supply-chain integration.
'It offers clear gains in goods trade, especially for labour-intensive sectors in a world of rising protectionism,' the analysis states. 'At the same time, unresolved issues pose significant risks of imbalance. These most notably include CBAM, services mobility, and non-tariff barriers.'
The final outcome depends on how these remaining issues get resolved. 'Whether the agreement ultimately becomes a growth-enabling partnership or a strategically asymmetric deal will depend on resolution of these final issues,' GTRI concludes.
