Home | My Feed | Saved Stories | About | Privacy
Back

India and European Union Conclude Free Trade Agreement Negotiations

Show me the source 15 Sources
Generated on: Last updated:

India-EU Conclude Landmark Free Trade Agreement After Two Decades

India and the European Union have successfully concluded negotiations for a comprehensive free trade agreement (FTA) after approximately two decades of intermittent talks. This significant deal aims to deepen economic and strategic ties between the two entities.

It is projected to create a market encompassing nearly 2 billion people and economies representing about a quarter of global GDP, accounting for approximately one-third of global trade.

A formal signing is anticipated later this year, contingent on approval from the EU Parliament and India's Union Cabinet. The agreement is expected to take effect potentially by early next year or by the end of the year.

Agreement Finalization and Timeline

Negotiations for the FTA initially began in 2007, facing delays over "mutually sensitive" issues such as agriculture and the automotive industry before being relaunched in 2022. The conclusion of negotiations was confirmed by India's Commerce Secretary Rajesh Agrawal.

The official announcement followed a summit in New Delhi involving European Commission President Ursula von der Leyen, European Council President Antonio Costa, and Indian Prime Minister Narendra Modi. President von der Leyen and President Costa were also chief guests at India's Republic Day celebrations, marking a first for top EU officials. Legal scrubbing of the FTA text is currently in progress.

Scope and Economic Significance

The agreement aims to boost two-way commerce and integrate supply chains, supporting job creation in both regions. The EU is India's largest trading partner, with goods trade reaching €120 billion ($140 billion) in 2024 and $136.53 billion in the fiscal year 2024-25. India, with a population of 1.4 billion, is projected to become the world's third-largest economy by 2030.

The EU, with a GDP of approximately $20 trillion and a population exceeding 450 million, remains India's largest trading partner. India is the EU's ninth-largest trading partner, accounting for 2.4% of the bloc's total goods trade in 2024. The agreement is anticipated to increase bilateral trade to approximately $200 billion by 2030.

Key Provisions: Tariff Reductions

The FTA involves substantial reductions or eliminations of tariffs on a wide range of goods.

The EU estimates the agreement could save European companies approximately €4 billion ($4.7 billion) annually in customs duties.

EU Exports to India

India is expected to reduce or eliminate tariffs on 96.6% of EU goods exports.

  • Automotive Sector: Tariffs on European cars, including brands like Volkswagen, BMW, Mercedes-Benz, and Renault, will gradually decrease from 110% to as low as 10%. This applies to an annual quota of 250,000 vehicles. Tariffs on car parts will be fully abolished after 5-10 years. Electric vehicles will have a five-year grace period, while cars priced below €15,000 will face higher tariffs.
  • Machinery, Chemicals, and Pharmaceuticals: India will largely eliminate tariffs on machinery (previously up to 44%), chemicals (22%), and pharmaceuticals (11%). The removal of pharmaceutical tariffs, particularly on drugs like cancer therapies, biologics, and GLP-1s (which represented $1.2 billion in 2024), is expected to benefit India's pharmaceutical sector by lowering import costs and improving supply chains, supporting a projected market growth from $31.2 billion in 2025 to $45.7 billion by 2035.
  • Beverages: Tariffs on wine will be reduced from 150% to 20-30% for medium and premium varieties, with an immediate drop to 75% for some. Tariffs on spirits will decrease from 150% to 40%.

India Exports to EU

The EU will reduce tariffs on 99.5% of goods imported from India by value, with 93% becoming duty-free within seven years.

  • Tariffs will be eliminated on Indian marine products (e.g., shrimp), leather goods, textiles, handicrafts, gems and jewelry, plastics, and toys. Other beneficiaries include apparel, engineering goods, footwear, rubber, and base metal products.
  • The agreement is also expected to help Indian pharmaceutical firms diversify export destinations and access new opportunities in the EU market, potentially reversing a recent stagnation in exports by aligning regulatory compliance, shortening approval timelines, and reducing administrative costs.

Exclusions and Sensitive Sectors

Certain product categories were excluded from the deal due to domestic sensitivities on both sides.

  • India's Exclusions: India excluded dairy products (e.g., milk, cheese) and cereals to protect its agricultural workforce.
  • EU's Exclusions: The EU will maintain tariffs on sensitive sectors such as beef, chicken, dairy, rice, sugar, poultry, and meat to protect its farmers.

Broader Cooperation

Beyond trade, the agreement encompasses a framework for enhanced security and defense cooperation between India and the EU. A separate pact has also been signed to facilitate mobility for skilled workers and students, which is expected to generate employment opportunities in both economies. Discussions are also underway for a potential role for India in the EU's Horizon research program and focus on connectivity initiatives like the India-Middle East-Europe Economic Corridor (IMEC). The two sides are also negotiating agreements on investment protection and Geographical Indications (GI).

Motivations and Geopolitical Context

The agreement's conclusion is attributed to several converging factors and geopolitical shifts. Both the EU and India seek to diversify economic partnerships amidst global economic uncertainty and trade tensions.

  • US Tariffs: The imposition of US tariffs on both the EU and India has incentivized both to seek alternative markets and strengthen mutual partnerships. India had previously faced 50% US tariffs due to its purchases of Russian crude oil.
  • Diversification and Strategic Autonomy: The agreement aligns with the EU's "strategic autonomy" policy, aiming to reduce reliance on potentially volatile markets and partners like China. For India, it helps diversify export destinations and reduce dependence on China.
  • Global Order: The deal is seen as a strategic signal, particularly in the context of global geopolitical shifts, with both the EU and India emphasizing their commitment to a rules-based international order and reduced trade dependencies.
  • Germany-India Relations: Germany has actively pursued a stronger partnership with India, driven by India's projected economic growth and the need for new economic opportunities and diversified supply chains.
  • Russia Stance: Despite German efforts to align India with Western condemnation of Russia, India has maintained its strategic autonomy, continuing to purchase Russian oil and maintaining close defense ties, with 60-70% of its armed forces depending on Russian military equipment.

Trade Statistics and Major Categories

  • Bilateral Goods Trade (2024-25): USD 136.53 billion (exports: USD 75.85 billion, imports: USD 60.68 billion).
  • Services Trade (2024): USD 83.10 billion.
  • Trade Surplus: India recorded a trade surplus of USD 15.17 billion in 2024-25.
  • India's Goods Exports to EU (FY2025): Petroleum products ($15 billion), electronics ($11.3 billion, including smartphones), textiles ($1.6 billion, garments $4.5 billion), machinery and computers ($5 billion), organic chemicals ($5.1 billion), iron and steel ($4.9 billion), gems and jewelry ($2.5 billion), pharmaceuticals ($3 billion), auto parts ($1.6 billion), footwear ($809 million), and coffee ($775 million).
  • India's Goods Imports from EU (FY2025): Machinery and computers ($13.0 billion), electronics ($9.4 billion, including mobile phone parts, ICs), aircraft ($6.3 billion), medical devices and scientific instruments ($3.8 billion), gems and jewelry ($3 billion, rough diamonds), organic chemicals ($2.3 billion), and plastics ($2.3 billion).
  • India's Key Services Exports to EU: Other business services, telecommunication and IT, and transportation services.
  • India's Key Services Imports from EU: Intellectual property services, telecommunication and IT services.

Implications for Other Nations

United States

The agreement's timing, alongside US tariffs on both India and Europe, signals a response to evolving global trade dynamics. Analysts suggest US goods may face increased competition in Indian and EU markets.
Separately, the United States and India have announced a framework for an Interim Agreement on trade. This framework includes India eliminating or reducing tariffs on various U.S. industrial goods and agricultural products (e.g., wine, spirits, tree nuts), and the U.S. applying a reciprocal tariff rate of 18% on specific Indian goods (e.g., textiles, leather, chemicals). The U.S. also intends to remove tariffs on certain Indian aircraft parts and potentially generic pharmaceuticals. India has committed to addressing non-tariff barriers for U.S. medical devices and agricultural products. India intends to purchase $500 billion of U.S. energy products, aircraft, and technology products over the next five years.

Australia

Australia's existing Economic Cooperation and Trade Agreement (ECTA) with India, in force since late 2022, has eliminated tariffs on all Indian exports to Australia and India has removed duties on 90% of Australian goods. The EU-India deal may encourage Australia and India to finalize their more comprehensive Comprehensive Economic Cooperation Agreement (CECA). Negotiations for an EU-Australia free trade agreement, which resumed in June after collapsing in 2023, could also be encouraged by the EU's recent success in forming alternative trading relationships. An EU-Australia deal is also being pursued, covering security cooperation, critical minerals, and trade, and could allow Australia to collaborate with European nations on defense procurement under the EU’s Security Action for Europe (SAFE) loan program.

China

The agreement is also seen as a move to diversify trade and reduce over-dependence on China, whose products, previously destined for the US, are sometimes redirected to other markets.

Challenges and Persistent Issues

Despite the broad agreement, some sticking points remain:

  • Labor and Environmental Standards: The agreement does not include comprehensive provisions on labor rights, environmental standards, or climate commitments, which are common in other EU deals and priorities for countries like Australia.
  • Agricultural Sensitivity: India's concerns that European agricultural products could displace domestic products and impact its large agricultural workforce contributed to the exclusion of certain products.
  • Steel: The EU's increased tariffs on foreign steel and new carbon taxes are viewed by India as protectionist measures affecting its steel exports.