India–EU Free Trade Agreement: A Historic Deal Set to Reshape Global Trade

The India–EU FTA could unlock massive trade potential, rebalance global supply chains, and deepen strategic cooperation between two of the world’s largest markets.

India and the European Union (EU) are approaching a landmark free trade agreement that officials and commentators are already describing as the “mother of all deals.” With negotiations nearing completion after nearly two decades of intermittent dialogue, the pact is expected to reshape economic cooperation between two of the world’s largest markets and deepen their strategic alignment in the context of broader geopolitical shifts.  

The Strategic Context 

The proposed India-EU Free Trade Agreement (FTA) comes at a time of growing global economic uncertainty and geopolitical competition. Both India and the EU face pressures from major trading powers such as China and the United States and are seeking to diversify their economic partnerships and fortify a rules-based international order. European Commission President Ursula von der Leyen has indicated that the conclusion of this pact would represent a historic moment for EU-India relations.  

For India, which is the world’s fastest-growing major economy and a centerpiece of the global multialignment strategy, deeper engagement with the EU offers an opportunity to expand export markets and integrate more fully into global value chains. For the EU, enhanced access to the Indian market represents a strategic counterbalance to China’s growing economic influence and a way to strengthen commercial ties with a rising economic power.  

Trade Relations and Economic Potential 

Bilateral trade between India and the EU has grown substantially over the past decade. In 2024, goods trade reached approximately 120 billion euros, with a further 60 billion euros in services exchanged between the two partners. Despite this growth, India still accounts for only about 2.5 percent of total EU goods trade, compared with nearly 15 percent for China, underscoring the significant untapped potential that a comprehensive agreement could unlock.  

The structure of the two economies suggests a high degree of complementarity. India’s strengths in labour-intensive manufacturing, textiles, pharmaceuticals, and services contrast with the EU’s comparative advantages in capital goods, machinery, chemicals, and high-technology sectors. Experts view this complementarity as a foundation for a symbiotic partnership that could boost competitiveness and stimulate investment across multiple industries.  

Major Features of the Proposed Agreement 

Negotiations have advanced on multiple fronts, though key details remain under discussion. The expected FTA aims to substantially reduce or eliminate tariffs on a large share of traded goods and services, facilitating greater market access for exporters on both sides. Indian negotiators are pushing for tariff reductions on products such as textiles, apparel, and pharmaceuticals, while the EU is seeking better access for automobiles, machinery, and manufactured goods. 

One of the most significant anticipated outcomes is a major reduction in India’s historically high tariffs on European automobiles. Reports indicate that India may reduce tariffs on imported EU cars from rates as high as 110 percent to approximately 40 percent initially, with further reductions over time. This would represent one of the most substantial openings of India’s protected automotive market and could significantly enhance the presence of European automakers in India.  

Beyond tariff reductions, the agreement could address regulatory harmonisation, intellectual property protections, and standards alignment. Both sides are also expected to include provisions for the mobility of professionals, investors, and students to support deeper integration. 

Broader Cooperation Beyond Trade 

Although economic considerations are central, the India-EU partnership extends into strategic and security domains. Officials are discussing cooperation on maritime security, cybersecurity, counterterrorism, climate action, and joint research initiatives. There are even talks of defence collaboration that could encompass joint production of military and dual-use technologies, reflecting a deepening of mutual strategic interests beyond commerce. 

These multidimensional ties reflect a shared interest in promoting stability and resilience amid global challenges such as supply chain disruptions, geopolitical conflicts, and economic fragmentation. Both India and the EU see enhanced cooperation to support a more balanced and diversified international order.  

Challenges and Remaining Questions 

Despite the optimism, some key issues continue to complicate negotiations. Sensitive sectors such as agriculture, dairy, and grains remain politically charged in both India and EU member states and may be excluded or insulated from full liberalisation. Regulatory concerns, particularly relating to the EU’s carbon border adjustment mechanisms and product standards, also pose negotiation challenges that could require phased implementation and compromise.  

Furthermore, both parties must reconcile domestic political pressures with international commitments, including balancing protection for local industries with broader economic integration goals. How these sectors are treated in the final text will be a key determinant of the agreement’s overall impact and political acceptability.  

Significance and Future Prospects 

If concluded, the India-EU FTA would be among the most significant trade agreements of the early 21st century. It would encompass a combined market of two billion people and represent roughly a quarter of global GDP. Analysts believe that the pact could elevate bilateral trade volumes significantly over the coming decade, potentially exceeding current figures by a substantial margin as barriers are reduced and investment flows increase.  

The agreement would also signal a strategic pivot in global economic diplomacy, demonstrating how large, diverse economies can cooperate to address shared challenges while maintaining national interests. For India, this pact would solidify its role as a key player in global trade. For the EU, it would reaffirm commitment to diversified engagement beyond Western economic blocs.