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Akshath Kaimal
8 February 2026 |
On 27 January 2026, in New Delhi, India and the European Union (EU) announced the completion of a free trade agreement covering multiple sectors. Ursula von der Leyen, President of the European Commission, hailed it as the “mother of all deals,” while Indian PM Narendra Modi called it the “biggest free trade deal in history.” It comes following nearly 20 years of negotiations between India and the EU. The formal signing and ratification of the deal by all 27 EU members is expected to happen later this year. While a broad deal has been agreed to, both parties said that specific details are still being worked on.
The following are four major takeaways from the free-trade agreement.
1. The long and tough road to the bilateral FTA, and the recent geopolitical nudge
Trade talks between the two began in 2007 but hit several hurdles along the way, particularly regarding the sale of cars and agricultural and dairy products. Talks restarted in 2022 but picked up pace in 2025 due to global economic uncertainties following the United States’ decision to impose higher tariffs on its trading partners. The trade deal reflects the EU and India’s desire to diversify their trade partners, especially in light of the US's aggressive trade tactics.
2. Major reductions in tariff rates
The trade agreement eliminates a wide range of tariffs on products originating from both sides. Tariffs on 96.6 per cent of EU products exported to India will be eliminated or reduced, and tariffs on 99.5 per cent of goods from India will be eliminated or reduced. EU tariffs on Indian marine products, such as shrimp, leather goods, handicrafts, plastics, gems and jewellery, and toys, will be reduced to nearly zero.
The EU traders stand to save EUR 4 billion annually with this deal. Tariffs on European cars, for example, will be reduced from the current 110 per cent to as little as 10 per cent. Additionally, India will almost entirely eliminate duties on machinery, chemicals, and pharmaceuticals. Wine will also see a rate cut from 150 per cent to 20-30 per cent, while tariffs on spirits will be reduced from 150 per cent to 40 per cent. However, the EU tariffs on beef, chicken, dairy, rice and sugar will remain the same.
3. Focus on expanded cooperation in defence, technology and critical minerals
The bilateral deal promotes collaborative research in artificial intelligence (AI), quantum, advanced semiconductors and clean tech. It aims to deepen cooperation in space technology through the EU-India Space Dialogue. They also agreed to cooperate to develop “resilient, secure and diversified critical minerals supply chains.” This comes amid increased restrictions on China's critical mineral exports.
Beyond tariff liberalisation, the agreement also reflects growing strategic trust between the EU and India, allowing economic cooperation to extend into sensitive areas such as advanced technology and defence, especially through the EU-India Security and Defence Partnership (SDP). While this is still a modest expansion of defence ties, it comes amid the Trump administration’s National Security Strategy, which calls for greater defence autonomy for European countries. It is also in India’s interest to explore alternative avenues for defence cooperation, as the US shows growing reluctance to act as a predictable partner and ally.
4. The impact of US trade pressure in accelerating the bilateral negotiations between India and the EU
The return of Trump as US President in 2025 increased uncertainty in international trade. On 02 April, the Trump Administration announced tariff increases on over 80 countries, with the EU and India facing 20 per cent and 26 per cent increases, respectively. India was subsequently singled out for steeper measures, with tariffs increased to 50 per cent.
Aggressive trade tactics by the US and the economic uncertainty they created encouraged the EU and India to seek alternative markets. According to the Kiel Institute for the World Economy, the increased tariffs reduced India’s GDP by 1.6 per cent, giving the country new impetus to diversify its trade portfolio. The EU’s intention to seek new partners is evident in von der Leyen’s February 2025 visit to India, during which she committed to concluding the trade deal by the end of the year.
5. Reducing reliance on China and backing open trade
Increased US tariffs have encouraged China to divert its products to other markets. This has increased the number of Chinese goods entering European and Indian markets, fueling concerns of product dumping. This has pushed Europe to pursue its de-risking plan with China. Supply chain dependence and restrictions on the export of critical minerals have also driven the EU to advance its de-risking strategy.
Both the EU and India have also struck trade deals with other countries over the last few months. The EU signed a deal with Mercosur, a South American trade bloc, in early January, and with Indonesia in September last year. India, on the other hand, signed agreements with New Zealand, Oman and the UK, although the deal with the EU is considerably bigger than all three. The EU-India trade agreement allows both countries to diversify their supply chains while also getting behind multilateral trade deals amid a highly politicised economic environment.
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