India and the European Union are on the verge of concluding negotiations for a comprehensive free trade agreement (FTA) on Tuesday, January 27, 2026. This landmark agreement, anticipated to be formalized during the India-EU summit in New Delhi, is expected to significantly reduce tariffs and enhance trade between the two regions. The agreement aims to boost Indian exports such as textiles and jewellery.
The conclusion of these protracted negotiations marks a turning point in the relationship between India and the EU, which has struggled to translate political goodwill into tangible outcomes. The FTA is expected to pave the way for reduced tariffs on European automobiles and wine, while expanding market access for Indian electronics, textiles, and chemicals sectors.
Prime Minister Narendra Modi is scheduled to meet with European Council President Antonio Costa and European Commission President Ursula von der Leyen between January 25 and 28. Von der Leyen is also expected to co-chair an India-EU summit during her visit.
The FTA could significantly benefit several Indian sectors. The European Union imports close to $125 billion of textiles annually, where India currently holds a 5-6% share compared to China's 30%. A trade agreement would allow Indian exporters to compete more effectively with countries like Bangladesh and Vietnam. Furthermore, India's autos, chemicals, electronics, pharmaceuticals, and textiles sectors are likely to emerge as key beneficiaries.
For the EU, the agreement offers an opportunity to reduce the steep duties on automobiles, auto parts, chemicals, and plastics that its exports currently face in India. With a weighted-average tariff of about 9.3% on $60.7 billion of goods in 2024/25, the EU stands to gain from tariff cuts that would open opportunities in cars, machinery, aircraft, and chemicals. The agreement would also improve access to services, procurement, and investment in India, one of the world's fastest-growing large markets.
While the FTA is expected to boost trade and economic cooperation, some sensitive issues remain. India has been reluctant to sharply cut tariffs on auto imports. The EU also has concerns regarding market access and agriculture, while India views the EU's Carbon Border Adjustment Mechanism as a form of green protectionism. Agriculture has been deliberately excluded from the agreement.
In addition to the FTA, India and the EU are also set to formalize a Security and Defence Partnership. This pact aims to shift the relationship from a buyer-seller dynamic to a structured industrial partnership, with Europe viewing India as a potential supplier and manufacturing partner. The agreement seeks to leverage India's growing defense industrial capabilities to strengthen European military capacity and diversify defense partnerships.
However, Indian exporters face immediate challenges. The EU suspended Generalised Scheme of Preferences (GSP) benefits for 87% of Indian goods from January 1, 2026, meaning that a large share of Indian exports will now be charged full Most Favoured Nation (MFN) tariffs. This suspension, along with the EU's Carbon Border Adjustment Mechanism (CBAM), creates a "double hit" for Indian exporters, combining higher tariffs with rising non-tariff costs. Ajay Srivastava from the Global Trade Research Initiative (GTRI) noted that until the FTA is implemented, exporters will need to navigate a period of reduced competitiveness.
Once finalized, the India-EU trade pact would need to be ratified by the European Parliament, a process that could take at least a year. Bilateral trade between India and the EU totaled $136.5 billion in the 2024/25 fiscal year, making the bloc one of India's biggest trading partners.
