India–EU FTA: India’s biggest trade bet yet

After nearly 18 years of negotiations, India and the European Union are close to finalising a Free Trade Agreement that could reshape India’s global trade strategy. Covering goods, services and trade rules across the EU’s 27-country customs union, the deal offers India preferential access to one of the world’s largest and richest markets. Its timing—amid global trade fragmentation, rising US tariffs and efforts to reduce over-dependence on China—underscores a pragmatic shift by both partners toward economic resilience over ideology.

For India, the impact on trade with Europe could be substantial. The European Union is one of the world’s most prosperous and most stable markets, with 450 million high-income consumers. In FY2025, India exported about $76 billion of goods to the EU. Although average EU tariffs are low, key exports such as textiles and garments still face duties of around 10%. Their elimination would directly boost exports, jobs and value-chain integration.

The FTA also opens opportunities in services, particularly IT and skill-intensive sectors, helping India diversify away from excessive dependence on the US market. However, the real gains will depend on how unresolved issues—especially the EU’s Carbon Border Adjustment Mechanism and persistent non-tariff barriers—are addressed. If managed well, the agreement could anchor a more balanced, resilient and growth-oriented India–Europe trade partnership.

Ajay Srivastava

For Europe, the prize is India’s growth and large market. EU exports to India face high duties on wines, automobiles, chemicals and other industrial goods. Tariff reductions would boost EU exports of EVs, machinery, electronics, aircraft, and other high-value manufactured goods, while strengthening investment and supply-chain links.

Both India and the European Union see core agriculture and dairy as sensitive and have chosen to exclude them from tariff cuts. For India, opening these sectors risks the livelihoods of 700 million people dependent on farming, domestic price volatility, and food security.

The EU template—park the most sensitive farm issues and close an “executable” deal—shows how India can do significant agreements while keeping agriculture largely protected. An India–US trade deal is eminently feasible without core agricultural products, which account for less than 4% of US exports to India. India has agreed to cut tariffs on industrial products that account for 95% of US exports to India.

Free trade agreements have become India’s main trade policy tool. The proposed EU pact would be India’s ninth FTA in just four years, following deals with Mauritius (2021), the UAE (2022), Australia (2022), EFTA (agreed in 2024 and effective from October 2025), the UK (signed in July 2025), Oman (concluded in December 2025), and New Zealand (concluded in December 2025). Alongside bilateral FTAs, India is also participating in plurilateral frameworks such as the Indo-Pacific Economic Framework, which focus on supply chains, clean economy and standards rather than tariff cuts.

The India–EU FTA would cap India’s recent surge in trade deals and set a template for future agreements--open on industrial goods and services, cautious on agriculture, and focused on practical outcomes. Its real value, however, will depend on the last mile: how effectively India and the EU manage CBAM-related costs for carbon-intensive exports, ease non-tariff barriers such as standards and certification that restrict market access, and address the immediate shock from the EU’s suspension of GSP tariff preferences from January 1, 2026. That move will raise duties on about 87% of India’s exports, including textiles and garments, well before the FTA takes effect—a process likely to take over a year.

If these challenges are handled well, the agreement could anchor a more balanced and resilient India–EU partnership and strengthen India’s hand in negotiations with the United States and other major economies.

(The writer is the founder of Global Trade Research Initiative)