Free trade is a contested concept in today’s geopolitical environment as the administration of US President Donal Trump continues to deploy restrictive trade measures in pursuit of political objectives. Against this backdrop, the upcoming India-EU Summit on Jan. 27 assumes importance well beyond the immediate interests of the two parties. The summit is expected to mark the conclusion of one of the world’s longest-running trade negotiations, bringing together the European Union – the world’s largest and most affluent trading bloc – and India, among the fastest-growing major economies.
Negotiations on the India-EU Free Trade Agreement (FTA) have spanned more than 18 years. Its imminent completion reflects not the resolution of all structural disagreements, but a convergence of strategic priorities shaped by shifting geopolitical and economic realities of today.
The significance of the FTA
India’s Minister of Commerce and Industry Piyush Goyal has described the proposed agreement as “the mother of all deals,” underscoring its scale and ambition. The EU Commission’s President Ursula von der Leyen echoed this easement at the World Economic Forum in Davos: “We are on the cusp of a historic trade agreement. Some call it the mother of all deals. One that would create a market of 2 billion people, accounting for almost a quarter of global GDP.”
If ratified by the Indian and EU parliaments, it would become India’s ninth trade agreement in the past four years, reinforcing a broader recalibration of its trade policy. This growing portfolio includes recent agreements with the UK, the UAE, Australia, New Zealand, Oman, and partners under the Indo-Pacific Economic Framework, signaling New Delhi’s increasing willingness to engage in preferential trade arrangements. For the EU, the FTA with India follows a recently signed deal with Mercosur countries of Argentina, Brazil, Uruguay and Paraguay, which was under negotiations for the last 25 years.
While the economic dividends of the India-EU FTA are expected to be considerable, its strategic value is arguably more significant.
The timing of the deal coincides with renewed trade tensions triggered by the policies of President Trump. The European Union now faces fresh US tariffs starting at 10 %. India, meanwhile, has already been subjected to tariffs of up to 50 % on certain exports to the United States, largely linked to its continued purchases of Russian crude oil.
The India-EU FTA is less about tariff reductions alone and more about risk diversification, supply chain resilience, and “strategic autonomy.” For both sides, the agreement offers a pathway to hedge against increasing trade uncertainty given the increasingly unpredictable United States and the historic overreliance on China.
Current trade between India and the EU
Bilateral trade between India and the European Union now exceeds $190 billion across goods, services, and investment flows, underscoring the EU’s role as one of India’s most significant economic partners. Since 2000, the bloc has accounted for approximately 16.6 % of cumulative foreign direct investment inflows into India, highlighting the depth of long-term capital engagement alongside trade.
On the export side, India’s shipments to the EU are led by petroleum products, electronics, and textiles and garments. In 2025, refined petroleum products remained a top export category, reflecting India’s emergence since 2022 as the largest exporter of refined fuels derived from Russian crude. This has been facilitated by the continued operation of the so-called “refining loophole” in Western sanctions regimes, which has allowed third countries to process Russian crude and export the resulting products as domestically originated goods to markets including the EU and the United States.
The scale of the oil trade is significant. A study by the Centre for Research on Energy and Clean Air (CREA) estimates that between 2022 and the end of 2025, the United Kingdom alone imported approximately £4 billion ($5.46 million) worth of jet fuel and other oil products refined in India and Turkey using Russian crude. These findings have intensified scrutiny in Brussels over war financing.
In response, the EU adopted a revised sanctions package in mid-2025 that explicitly prohibits imports of refined petroleum products derived from Russian crude, even when processed in third countries. From Jan. 21, 2026, EU importers will be required to demonstrate that their products do not originate from Russian oil, while European financial institutions are barred from financing trade suspected of such linkages. The effectiveness of these measures, however, will hinge on enforcement capacity.
Electronics represent India’s second-largest export category to the EU, with smart phones accounting for roughly 60 % of shipments. In 2024 alone, India exported more than 120 million smartphone units globally. Production is dominated by multinational brands such as Apple, Samsung, Xiaomi, and Oppo, which have expanded manufacturing operations in India under the government’s Production Linked Incentive (PLI) scheme. This reflects India’s growing integration into global electronics value chains.
Despite the scale of trade, tariff asymmetries remain pronounced. Average EU tariffs on Indian goods are relatively low, at around 3.8% on exports worth $75.9 billion in FY2025. However, labor-intensive sectors such as textiles and apparel continue to face duties close to 10%, constraining competitiveness in precisely those industries where India holds comparative advantages.
By contrast, India maintains significantly higher barriers on European imports. The weighted average tariff on EU goods stands at approximately 9.3% on shipments valued at $60.7 billion. Protection is particularly pronounced in automobiles and components, which face duties of about 35.5%, alongside elevated tariffs on plastics (10.4%) and chemicals and pharmaceuticals (around 9.9%). These measures materially raise market entry costs for EU firms and remain a central friction point in ongoing trade negotiations.
Points of contention
The EU is pressing India to eliminate tariffs on over 95% of imports, while New Delhi signals willingness to move closer to 90%, keeping sensitive sectors such as agriculture and dairy largely outside the scope of negotiations.
Automobiles and alcohol remain among the most contentious areas. European carmakers are pushing for steep cuts in India’s import duties on fully built vehicles, while New Delhi is wary of undermining domestic manufacturing and setting precedents for other major exporters, notably Japan and South Korea.
One of the key challenges that could significantly dilute India’s gains if left unresolved is the EU’s Carbon Border Adjustment Mechanism (CBAM), which imposes climate-linked charges on imports like steel and aluminium. Even if tariffs are eliminated under a free trade agreement, CBAM could function as a de facto new barrier, particularly affecting SMEs with limited capacity to comply. India is therefore seeking exemptions, carve-outs or safeguards, warning that without them the deal risks becoming more restrictive than intended.
Beyond tariffs, Indian exporters face a wide spectrum of non-tariff barriers that can erode the benefits of market access. These include prolonged pharmaceutical approval timelines, stringent sanitary and phytosanitary (SPS) requirements for food and agricultural exports, and complex testing, certification, and conformity-assessment procedures. Products such as basmati rice, spices, and tea are frequently subjected to intensified inspections following reductions in permissible pesticide residue limits, while seafood exports face heightened sampling rates over antibiotic concerns.
Together, these tariff and non-tariff challenges illustrate the delicate balancing act India must perform: securing meaningful market access for its exporters while safeguarding domestic industries and ensuring that regulatory mechanisms like CBAM do not nullify potential gains.
Mutual benefits
A comprehensive free trade agreement with the European Union would be a watershed moment for India’s trade policy, not only because of its sheer economic scale but because of the regulatory discipline it would impose. As a unified customs bloc, the EU offers Indian firms something no bilateral partner can match: preferential access to 27 markets through a single rulebook, sharply reducing the cost and complexity of exporting to Europe.
The prize is substantial. With roughly 450 million consumers and an economy worth €18-22 trillion ($21-26 trillion), the EU remains one of the world’s most profitable destinations for exporters. Yet India’s foothold has weakened since the EU withdrew Generalised System of Preferences (GSP) benefits in 2023, undercutting price competitiveness in sectors where margins are already thin. An FTA is therefore less a luxury than a corrective to India’s eroding market access.
Services liberalization should sit at the core of any agreement. Expanded access for information technology and other skill-intensive services would allow India to capitalize on its comparative advantage in human capital, diversify export revenues, and reduce an increasingly risky overdependence on the US market. Without meaningful movement on services, the strategic value of the deal would be sharply diminished.
On the goods side, the case is equally compelling. Labor-intensive exports such as textiles, garments, leather goods and auto components continue to face higher EU tariffs than those levied on competing suppliers. Targeted tariff reductions could help India claw back lost market share and translate manufacturing ambitions into export outcomes.
The benefits, however, would not be one-sided. European exporters stand to gain significantly from preferential access to India’s large and fast-growing market, particularly for high-value manufactured goods such as aircraft, machinery and chemicals, alongside new openings in services, investment and public procurement.
Strategically, the logic for Brussels is clear. Deeper trade ties with India support the EU’s push to diversify supply chains, limit exposure to China, and secure a lasting economic and geopolitical presence in one of Asia’s most consequential growth markets. In this sense, an India-EU FTA is not merely a trade agreement, but a calculated bet on India’s long-term strategic weight.