Authors:Dr Rajdeep Singh and John Alistair Clarke
This is a pivotal year for the India-Europe relationship as they conclude the FTA negotiations after nearly two decades. The agreement liberalizes—fully or partly—99% of Indian exports to Europe and over 95% of EU exports to India. With a combined market of over USD 24 trillion, bringing unparalleled opportunities for the 2 billion people of India and the EU, the FTA unlocks significant potential for trade and innovation. The FTA holds immense promise for both India and the EU to emerge as each other’s major economic partners.
When negotiations were relaunched almost three years ago after a long hiatus, expectations were muted. The earlier collapse of talks had left scars on both sides. India had grown wary of the imposition of “neo-colonial Western values,” notably binding commitments that might constrain domestic policy space. Europe, for its part, had become increasingly prescriptive about sustainability, labor standards, and regulatory alignment. These differences had not disappeared. What changed was the environment in which the two sides were operating.
A relationship shaped by imbalance
The trade relationship between the EU and India has been asymmetrical. Cross-border merchandise between India and the European Union (EU) reached a total value of USD 136.54 billion in 2024-25, with India exporting roughly USD 75.85 billion to the EU. On the services front, the India-EU trade value reached approximately USD 83.10 billion in 2024.
The EU is India’s largest trading partner, accounting for 11.5% of India’s total trade. India is only the EU’s 9th largest trading partner, accounting for 2.4% of the EU’s total trade in goods in 2024, well behind the USA (17.3%), China (14.6%), or the UK (10.1%). This imbalance has mattered. Europe sees India as a large but underpenetrated market, growing steadily but still protected by high tariffs and complex regulation. India sees Europe as important, but not indispensable. Any agreement between the two was therefore unlikely to resemble the deep, rules-heavy trade deals the EU has concluded with smaller economies.
Why did the deal become possible?
Context matters. For Europe, the pandemic was a turning point. Supply chain disruptions exposed uncomfortable dependencies, particularly on China. At the same time, trade policy became harder to sell domestically. Farmer protests over the Mercosur agreement, the stalling of talks elsewhere, and growing skepticism toward globalization narrowed Europe’s room for maneuver.
India, by contrast, entered the negotiations with greater confidence than in the past. A decade of relatively strong growth, an expanding manufacturing base, and an explicit push to move up the value chain under Make in India altered the political calculus. India still guards its policy autonomy closely, but it is no longer as defensive about exposing parts of its economy to competition.
There was also a strategic dimension. Slowing export growth to the United States, episodic trade friction, and tariff barriers underlined the risks of over-reliance on a single market. Europe offered diversification, even if on carefully negotiated terms.
In the authors’ opinion, the India–EU FTA is not a symbolic milestone but a potential economic reset, arriving at a moment when both India and the EU are seeking to rebalance trade exposure, reduce concentration risk, and navigate a more fragmented global trade environment.
What the agreement does—and does not—do
The EU provides preferential access to India across 97% of EU tariff lines, covering almost 99.5% of the entire trade value. Most gains are immediate, with over 70% of tariff lines—representing about 90% of India’s exports—moving to zero duty, mainly in labor-intensive sectors such as textiles, apparel, leather, marine products, and gems and jewelry. A further tranche will be liberalized over three to five years, while a small share will see partial cuts or quota-based access. For labor-intensive exports of roughly USD 33 billion, currently facing EU duties of 4–26%, the agreement improves price competitiveness, though outcomes will hinge on compliance with EU regulatory standards.
Under the FTA, India will liberalize 92.1% of its tariff lines, covering 97.5% of EU exports. About half of these lines will see immediate duty elimination, while most of the remainder will be phased out over five to ten years. Only a small share will be subject to partial reductions or tariff-rate quotas, mainly for sensitive agricultural products such as apples, pears, peaches, and kiwis. Greater access for EU high-technology goods is expected to diversify India’s import base, lower input costs, and support deeper integration of Indian firms into global value chains.
But the agreement is as notable for its exclusions as for its coverage. Agriculture, predictably, remains largely outside the deal. India’s dairy sector is untouched. Europe in turn kept beef, sugar, poultry, and rice off the table. From a textbook trade perspective, this is a weakness. From a political one, it was probably unavoidable. Trade agreements today are negotiated in a far more constrained political environment than they were even a decade ago. The India–EU FTA reflects that reality.
Sustainability, softened
Perhaps the clearest example of compromise lies in the sustainability chapter. The EU initially pushed for binding commitments on labor rights, environmental standards, and climate obligations, with enforcement mechanisms that could lead to trade sanctions. India resisted firmly. While it accepts these objectives in multilateral forums, it has consistently rejected their enforcement through trade agreements, arguing that this undermines sovereignty and development priorities.
The concluded FTA moves away from coercion towards cooperation. Dialogue, capacity-building, and voluntary alignment replace sanction-backed obligations. This shift made the agreement politically acceptable in India. It also reflects a broader recalibration within Europe, where concerns have grown about the regulatory and competitiveness costs of overly ambitious climate-linked trade provisions.
The economic upside for India
For India, the agreement’s value lies less in headline tariff cuts and more in strategic positioning. Preferential access to a large, high-income market helps at a time when global demand is uncertain and protectionism is rising. It also strengthens India’s case as a manufacturing and services hub for European firms seeking to diversify their global footprint.
Investment is likely to be as important as trade. The EU already accounts for a significant share of FDI into India. Greater predictability in market access and regulation could encourage European firms to expand operations in manufacturing, clean technology, logistics, and other services.
There is also cautious optimism about benefits for micro, small, and medium enterprises. MSMEs contribute roughly 40 percent of India’s exports but often struggle with regulatory barriers and scale. Whether the FTA meaningfully improves their access to European markets will depend on how non-tariff barriers are handled in practice.
The US reaction and what it signals
The initial critical reaction from Washington offers an external lens on the agreement’s significance. US concerns reflect unease over Europe’s first-mover advantage in a market of over 1.4 billion people, alongside frustration with India’s reluctance to revive bilateral trade talks while punitive tariffs remain in place. It is no coincidence that the US quickly moved to moderate its tariff stance on certain Make in India products, inking a framework trade agreement with India that reduced duties to around 18%, underscoring the competitive pressure created by the India–EU agreement. For India, however, the FTA remains consistent with its long-standing preference for strategic autonomy. It is neither a values-based alliance nor a geopolitical instrument of exclusion, but a transaction shaped primarily by economic and strategic interests.
The harder part begins—Beyond the Signing Ceremony
The agreement in principle marks the beginning of a more demanding phase. Several sensitive issues—business visas, public procurement, steel safeguards, digital trade rules, and emissions-related measures—have been set aside or deferred. Experience suggests that these “later” issues often prove the most difficult. This approach delayed the conclusion of the EU-Mercosur and EU-Mexico deals by 2 years, because issues kicked into the long grass are almost always troublesome.
Implementation will test administrative capacity on both sides. The European Commission has a habit of enthusiastically negotiating agreements but gets bored by the prosaic job of implementation. It relies on overworked EU Delegations with limited resources and little expertise in, for example, procurement or forestry management or customs reforms required to effectively implement the trade agreements. While for India, it will require coordination across states and numerous regulators to ensure that market access commitments translate into real outcomes. For both the partners it will require sustained engagement well beyond the signing ceremony, something that past trade agreements suggest cannot be taken for granted.
A deal of realism
The last big question is whether this agreement signifies a tectonic shift in world trade: the world’s two biggest democracies, the second and fourth economies, asserting common values in the face of a rogue US and a hostile China? The EU likes to think so.
Or is it a pragmatic transaction to boost the two sides’ respective exporters and investors, giving each side a positive economic narrative to show to Moody’s while brushing under the carpet serious political differences—be it India’s historical friendship with Russia, the EU’s unquestioning support for the civilizational erasure of Gaza’s Palestinians, or, more generally, India’s long-standing policy of non-alignment and a very different value set from that in Europe?
As with most foreign policy and cultural issues, the truth lies somewhere in between. But the authors lean toward the latter characterization.
It has been quipped that the India–EU FTA is less “the mother of all trade deals” and more the mother-in-law. But it is still very valuable. The deal does not arrive with the kind of exuberance that once surrounded large trade agreements. Nor does it claim to reset the global trading system. Instead, it reflects something more modest and perhaps more realistic: a convergence of interests at a moment when both sides needed a deal, even if neither got quite what it originally wanted. In a world where large trade agreements are increasingly hard to conclude, it represents a workable compromise grounded in realism. This is the most one can reasonably expect in the current global climate. Now, the plea to both governments is to commit energy and resources to full and faithful implementation in the years ahead. That means through continuous dialogue between the governments on both sides and the setting up of structures involving business, NGOs, and parliamentarians to keep both governments’ feet to the fire.
If well implemented, the agreement has the potential to be the game changer in EU-India relations that many have hoped for. It really will represent “the art of the deal.” ”.
The views expressed are those of the authors and not of the organisations they work for.
