Why the India-EU FTA Is a Game-Changer for Global Commerce

The long-awaited India-EU Free Trade Agreement (FTA) has finally been concluded, marking what many have described as the ‘Mother of all Deals’. The timing of the agreement is significant.

The urgency displayed in the final stages of negotiations last year was clearly shaped by shared geopolitical concerns and the need for economic ‘Trump-proofing’ amid uncertainty surrounding US trade policy.

Even beyond this strategic urgency, the enthusiasm surrounding the agreement is justified. The India-EU FTA is historic in scale and ambition, bringing together India—the world’s 4th largest economy—and the European Union, the 2nd largest economic bloc, together accounting for 25% of global GDP and nearly one-third of global trade.

India-EU Trade Snapshot: Key Numbers That Define the Relationship

Bilateral Trade Performance

• Total bilateral trade in goods in 2024-25 stood at US$137 billion.

• India currently enjoys a trade surplus of US$15.9 billion with the EU.

• In FY25, the EU accounted for 17.3% of India’s total exports, second only to the US at 19.8%.

The agreement’s delayed conclusion has had one advantage—it allowed India to absorb lessons from earlier FTAs and negotiate from a position of greater maturity and caution.

What India Gains from the FTA

Market Access and Tariff Liberalisation

India has secured market access for over 99% of its exports by trade value, covering more than 70% of tariff lines.

• Nearly 21% of tariff lines will move to zero-duty access within 3–5 years.

• Over 6% of tariff lines will receive preferential access through tariff reductions or TRQs (Tariff Rate Quotas).

Engineering, Labour-Intensive and Manufacturing Sectors

Engineering exports—accounting for nearly 22% of India’s exports—stand to gain significantly, particularly as current EU tariffs reach up to 22%.
Labour-intensive sectors such as jewellery and leather are also set to benefit from improved access and competitiveness.

Textiles and Readymade Garments: A Major Breakthrough

Textiles and readymade garments (RMG) represent one of India’s most critical export sectors.

• India currently holds a 5% share of the EU’s RMG market.

• Competitors such as Bangladesh, Turkey, Vietnam, and Pakistan already enjoy duty-free access.

• The suspension of GSP benefits from January 1, 2026 widened the tariff gap for India.

The FTA now restores parity and is expected to lift India’s RMG market share to 8–9%, creating a level playing field for exporters.

Services, Mobility, and Digital Trade

Expanded Services Coverage

The agreement spans a wide range of sectors:

• IT and IT-enabled services

• Professional services

• Education, tourism, and construction

Predictable and transparent access to EU sub-sectors is expected to enhance investor confidence and service exports.

Financial Services and Mobility

Financial services—including cross-border electronic payments—are set to gain.
On mobility, the FTA introduces a facilitative framework for short-term, temporary, and business travel, while also opening doors for Indian traditional medicine practitioners.

Rules, Regulations, and Institutional Framework

Trade Governance Chapters

The agreement includes detailed chapters on:

• Rules of Origin

• Customs and Trade Facilitation

• Reduction of red tape

• Sanitary and Phytosanitary (SPS) measures

• Technical Barriers to Trade (TBT) aligned with WTO commitments

IP, Digital Trade, and Trade Remedies

• TRIPS-level intellectual property protections are reinforced.

• Provisions exist for trade remedies, including anti-dumping and safeguards.

• Digital trade receives dedicated attention, reflecting modern trade realities.

Support for SMEs and Sustainable Development

A dedicated Small & Medium Enterprises (SME) chapter aims to improve access through:

• Designated contact points

• Better information flows

• Efficiency-enhancing mechanisms

Separate chapters underline commitments to:

• Transparency and good regulatory practices

• Sustainable food systems

• Environment, climate, and workers’ rights

• Gender equality and structured dispute settlement mechanisms

What the EU Gains from the Agreement

Access to a Vast and Growing Market

The EU gains access to an Indian market three times larger than all 27 EU countries combined.
India will eliminate:

• 86% of tariff lines

• 93% of tariff value

Key Beneficiary Sectors

EU exports expected to gain include:

• Agri-food products (olive oil, fruit juices, confectionery, bread, pasta)

• Chemicals and pharmaceuticals

• Machinery, medical devices, avionics, and high-end automobiles

Industrial products such as cosmetics, plastics, ceramics, and boats will become cheaper in India.

Alcoholic beverage tariffs will be reduced gradually to:

• 30% for most wines

• 40% for spirits

• 50% for beer

Agricultural sensitivities are protected on both sides.

Areas of Concern and Strategic Challenges

CBAM and Non-Tariff Barriers

The FTA does not resolve the EU’s CBAM provisions, which will continue as a non-tariff barrier.
India has secured assurances that:

• Any flexibilities granted to third countries will also apply to India.

• Enhanced technical cooperation on carbon pricing will be pursued.

Trade Balance and Industry Pressure

There is concern that India’s current trade surplus could narrow as EU imports rise.
EU standards—health, SPS, and IP—remain stringent, though they already apply today.
Automobiles and auto components may face competitive pressure, albeit through a phased and quota-based approach.

Global Trade Realities and Strategic Significance

This agreement underscores how globalisation is evolving. The traditional ‘law of comparative advantage’ is increasingly segmented. With the WTO weakened and MFN principles diluted, FTAs are becoming tools of strategic alignment rather than pure efficiency.

With 380 FTAs currently in force and 200+ pending, the complexity of global trade has grown—but this shift reflects unavoidable geo-economic realities rather than policy failure.

Conclusion: Opportunity Backed by Responsibility

The India-EU FTA opens access to a market generating over 17% of global GDP. Its success now depends on how effectively Indian exporters adapt to EU standards and leverage the transition period before the agreement enters into force by late 2026 or early 2027.

Rather than viewing this FTA through the lens of past experiences like ASEAN, India must recognise the EU’s robust regulatory ecosystem and strategic alignment. The agreement is not merely about tariffs—it is about anchoring India more firmly in the evolving architecture of global trade.