India and the European Union (EU) have officially finalized negotiations for a comprehensive free trade agreement (FTA) on January 27, 2026, after 18 years of discussions. This landmark deal, hailed as the "mother of all deals" by European Commission President Ursula von der Leyen, is expected to significantly boost economic ties between the two regions.
Key Benefits of the India-EU Trade Deal
The agreement is projected to double EU goods exports to India by 2032 through the elimination or reduction of tariffs on 96.6% of EU goods exports to India. This translates to approximately €4 billion in annual savings on duties for European products. Indian Prime Minister Narendra Modi stated that the deal encompasses 25% of global GDP and one-third of global trade.
Expected Price Reductions
The FTA is anticipated to make a variety of goods more affordable for Indian consumers. These include:
- Automobiles: India is planning to slash tariffs on cars imported from the EU to 40% from the current 70% to 110%. This reduction is expected to apply to approximately 200,000 combustion-engine cars annually. This could lead to reduced prices for luxury brands like BMW, Lamborghini and Porsche. Battery electric vehicles may be excluded from these import duty reductions for the first five years to protect domestic players.
- Pharmaceuticals: Tariffs will be reduced to zero for a vast swathe of industrial products, including pharmaceuticals. This could lead to lower costs for essential medicines, including cancer treatments.
- Alcohol: Import duties on European wines are set to decrease from 150% to 20%, making them more affordable for Indian consumers.
Other Key Aspects of the Agreement
Besides tariff reductions, the India-EU FTA encompasses several other important provisions:
- Services: EU companies will gain greater access to the Indian services market, particularly in sectors like financial services and maritime transport.
- Intellectual Property: The agreement provides enhanced protection and enforcement of intellectual property rights, covering areas such as copyright, trademarks, and trade secrets.
- Sustainable Development: The FTA incorporates a dedicated chapter on trade and sustainable development, focusing on environmental protection, climate change mitigation, workers' rights, and women's empowerment. A Memorandum of Understanding will also establish an EU-India platform for cooperation on climate action.
- Small Businesses: A dedicated chapter aims to assist small businesses by providing easy access to information and resources for conducting business in both the EU and India.
Concerns and Considerations
While the FTA is largely viewed as a positive development, some concerns have been raised:
- The European Automobile Manufacturers' Association (ACEA) has cautioned against potential restrictions such as quotas, licenses, and residual tariffs, which could limit the benefits of the agreement. ACEA advocates for the complete removal of tariffs on auto components to boost manufacturing in both regions.
Overall Impact
The India-EU FTA is poised to reshape the economic landscape for both regions. By lowering trade barriers, fostering investment, and promoting cooperation on key issues, the agreement is expected to drive economic growth, create jobs, and strengthen the overall relationship between India and the European Union. The agreement is expected to be signed later in 2026 and may come into force from early next year.
