The India-EU Free Trade Agreement (FTA), expected to be announced on January 27, 2026, at the India-EU Summit, is likely to expand trade between the two regions rather than pose a significant threat to domestic industries. According to the Global Trade Research Initiative (GTRI), this agreement, if structured carefully, holds the potential to reshape India's trade relations with Europe, anchoring long-term export growth, investment flows, and supply chain integration.
The EU is already India's largest trading partner, with goods trade alone reaching around $135 billion in FY24. The FTA is expected to further boost this number over time by making it easier and cheaper for Indian and European companies to conduct business. This will be achieved through lower or zero customs duties on goods, easier access for services like IT, consulting and finance, clearer rules for foreign investment, and smoother movement of professionals and skilled workers.
However, the path to finalizing the FTA has not been without its challenges. Negotiations, which began in 2007, were suspended in 2013 due to disagreements on several sensitive issues, including import duties on automobiles and wine, intellectual property rights in pharmaceuticals, market access for services, and regulatory standards and data protection. Negotiations resumed in 2022, reflecting renewed political will on both sides to balance domestic priorities with global competitiveness.
Despite the potential gains, GTRI has also pointed out potential imbalances and challenges that need to be addressed. One major concern is the EU's Carbon Border Adjustment Mechanism (CBAM), which could constrain Indian exports due to Europe's climate-linked border measures. GTRI has urged India to seek exemptions, carve-outs, or safeguard language to prevent the FTA from becoming structurally unbalanced. They also noted that the EU limits remote delivery of services by requiring Indian firms to set up local offices and by imposing high minimum salary thresholds for Indian professionals. India is also seeking EU recognition as a 'data-secure' country under the EU's General Data Protection Regulation (GDPR) to allow smoother transfer of EU citizens' data.
Furthermore, India has maintained a firm stance on protecting its agriculture and dairy sectors, seeking phased tariff cuts in manufacturing to safeguard domestic producers from abrupt import competition. The EU, on the other hand, has been pushing for deeper tariff cuts on industrial goods, including automobiles and auto components, and greater access for European service providers.
In the interim, Indian exporters face immediate challenges as the EU has suspended Generalised Scheme of Preferences (GSP) benefits for 87% of Indian goods from January 1, 2026. This means that a large share of Indian exports will now be charged full Most Favoured Nation (MFN) tariffs, ending years of preferential access under the EU's unilateral trade arrangement for developing countries. GTRI noted that Indian exporters will need to navigate a period of reduced competitiveness until the India-EU FTA is implemented, especially in sectors exposed to both tariff and climate-related trade measures.
Overall, the India-EU FTA represents a significant opportunity to strengthen economic ties and promote trade and investment between the two regions. While challenges and potential imbalances remain, a carefully negotiated agreement can pave the way for long-term growth and integration in a world of increasing protectionism. The agreement is expected to focus on lowering customs duties, easing services access, establishing clearer investment rules and facilitating the movement of skilled workers. The successful navigation of these issues will determine whether the deal becomes a growth-enhancing partnership or a strategically asymmetric one.
