‍India-EU Free Trade Agreement 2026: Why It’s the Mother of All Trades

‍India-EU Free Trade Agreement 2026: Why It’s the Mother of All Trades

On January 27, 2026, India and the European Union announced the conclusion of the India EU Free Trade Agreement, often described as the mother of all trade deals. Finalised during the India EU Summit in New Delhi, the agreement marks the end of negotiations that restarted in 2022 after a long pause.

Once implemented, likely in 2027 after legal review and ratification, this agreement will create one of the world’s largest free trade areas. It will cover nearly two billion people and around a quarter of global GDP, making it a landmark moment for India’s trade, manufacturing, and investment landscape.

For Indian businesses, exporters, and investors, this deal carries long-term implications that go well beyond headline tariff cuts.

What Is the India EU Free Trade Agreement

The India EU Free Trade Agreement is a comprehensive pact covering goods, services, and broader economic cooperation. The European Union is already India’s largest trading partner, with bilateral trade recently estimated around 136 to 140 billion dollars.

This agreement aims to deepen that relationship by lowering tariffs, easing regulatory barriers, and opening markets on both sides. Unlike limited trade arrangements, this pact spans multiple sectors and addresses strategic concerns such as supply chain resilience and sustainability.

Tariff Reductions and Market Access

Lower Import Duties on European Goods

One of the most discussed aspects of the agreement is India’s decision to reduce import duties on European products. Passenger vehicle tariffs, which were as high as 110 percent, will be reduced to 40 percent initially, with a roadmap to bring them down to 10 percent over time.

This move benefits European automakers such as Volkswagen, Mercedes-Benz, and BMW. At the same time, India has protected sensitive sectors like dairy and certain agricultural products to safeguard domestic producers.

Boost for Indian Exporters

India gains improved access to the European market for several labour-intensive and high-growth sectors. These include textiles, garments, leather goods, footwear, chemicals, pharmaceuticals, electronics, machinery, and gems and jewellery.

This is particularly important after the European Union withdrew India’s Generalised System of Preferences benefits in 2023. The FTA helps Indian exporters regain competitiveness and diversify away from overdependence on any single geography.

Impact on Indian Manufacturing and Industry

Strengthening Make in India

The agreement aligns closely with India’s Make in India strategy. Lower trade barriers encourage European companies to expand manufacturing operations in India rather than exporting finished goods.

Around 6,000 European companies already operate in India. With clearer trade rules and improved investment confidence, this number is expected to grow, supporting employment and technology transfer.

Supply Chain Diversification

For Europe, the agreement helps reduce reliance on China by diversifying supply chains. For India, it offers an opportunity to position itself as a trusted global manufacturing hub, particularly in electronics, engineering goods, and clean technologies.

Services, Investments, and Strategic Cooperation

Opening Doors for Services

Beyond goods, the agreement covers liberalisation in services such as telecommunications, transport, accounting, and auditing. Indian professionals stand to benefit from improved market access and regulatory clarity.

Separate discussions are ongoing for investment protection and geographical indications, which are expected to be concluded in the coming months.

Worker Mobility and Skill Opportunities

An important complementary development is the proposed memorandum of understanding on worker mobility. This aims to facilitate easier movement of skilled Indian professionals to Europe, especially in sectors facing labour shortages.

Strategic and Geopolitical Significance

The agreement strengthens India EU ties amid shifting global trade dynamics. With rising protectionism in parts of the world, including the United States, this pact sends a strong signal in favour of open, rules-based trade.

It also extends cooperation into defence, security, critical technologies, and sustainability, areas that are increasingly relevant for long-term economic stability.

Addressing Sustainability and CBAM Concerns

One of India’s key concerns during negotiations was the European Union’s Carbon Border Adjustment Mechanism. This mechanism could impose additional costs on carbon-intensive exports.

The final agreement adopts a pragmatic approach, with safeguards and exclusions for sensitive sectors. While sustainability commitments remain, India has ensured that the transition is gradual and aligned with domestic realities.

This balanced approach reduces near-term risks for Indian exporters while encouraging long-term adoption of cleaner technologies.