India and EU Announce Free Trade Agreement
India and the European Union (EU) have announced the finalization of negotiations for a Free Trade Agreement (FTA) on Tuesday, January 27, 2026. Prime Minister Narendra Modi called it the "mother of all deals". The agreement is expected to be formally signed later in the year and come into effect in early 2027.
Negotiations for the India-EU FTA began in 2007 but were suspended in 2013 due to disagreements. Talks were relaunched in June 2022.
Key Aspects of the FTA
- The EU stated the FTA will save €4 billion annually in duties due to India's agreement to reduce or eliminate tariffs on nearly 97% of goods imported from Europe.
- India will reduce tariffs on imports of cars from Europe from 110% to 10% with a quota of 250,000 vehicles per year.
- The EU will double its exports to India as part of the FTA, enhancing access to India's services market, especially in financial services.
- The FTA could remove tariff and non-tariff barriers on over 90% of Indian goods, potentially benefiting sectors like textiles, leather, chemicals, electronics, and jewelry.
- India's tariffs on EU goods will be reduced to zero for 93% of bilateral trade value over ten years. The EU will phase out tariffs on Indian goods over seven years, excluding sensitive sectors like automobiles, steel, and agriculture.
Potential Benefits for India
The FTA is expected to boost Indian exporters impacted by tariffs imposed by the United States. It may also ease the pressure of tariffs imposed by the U.S. on Indian goods and additional tariffs for the purchase of Russian oil. The agreement will offer duty-free or preferential access to sectors like textiles, chemicals, gems, and jewelry.
The FTA aims for deep tariff liberalization, with the EU opening 96.8% of its tariff lines and India 92.1%. Labour-intensive industries are expected to benefit significantly, with the elimination of tariffs of up to 10% on nearly $33 billion of exports upon the agreement's entry into force.
Geopolitical Context
Some analysts suggest that aggressive trade policies from the U.S. have encouraged India and the EU to reach an agreement. The deal can be seen as a strategic counterweight to the U.S.'s tariff-heavy approach.
Impact and Future Steps
The India-EU FTA is expected to create a market of nearly 2 billion consumers and account for approximately 25% of global GDP. The agreement is expected to be signed later this year and come into force from early next year.
