India, EU sign landmark free trade agreement to create 2 billion person market

Indian Prime Minister Narendra Modi hailed the signing of a “landmark” free trade agreement between India and the EU on Tuesday, describing the pact as the “mother of all agreements” during his address at India Energy Week.

Modi noted that the agreement with the EU—which represents approximately 25% of global GDP and nearly one-third of global trade—will complement India’s existing deals with the United Kingdom and the European Free Trade Association.

The agreement will establish a market of 2 billion people at a time when commercial ties are being tested by escalating geopolitical tensions.

“I congratulate our colleagues from every sector, including textiles, jewelry, leather, and footwear,” Modi said. “This agreement will provide immense support to these industries.”

The European Commission characterized the deal as “the most ambitious trade opening India has ever granted to a partner.”

A cornerstone of the agreement is the reduction of tariffs on European automobiles from 110% to 10% within a quota of 250,000 vehicles. Meanwhile, tariffs on automotive parts are set to be phased out entirely over the next five to ten years.

The Commission further noted that tariffs of up to 44% on machinery—the EU’s primary export to India—along with 22% tariffs on chemicals and 11% on pharmaceuticals, will largely be eliminated within a decade.

Regarding agriculture and food products, most items were excluded from the negotiations, as previously reported by Euractiv. For instance, beef, poultry, rice, and sugar remain outside the scope of the deal, and the bloc will not export dairy products, reflecting India’s efforts to protect its domestic industry.

Nevertheless, the EU secured market access for processed food and beverage products.

Once the agreement enters into force, tariffs on wine will drop from 150% to 75%, with a gradual reduction to 20% over several years. Similarly, high tariffs on spirits will be cut to 40%, while beer tariffs will fall from 110% to 50%.

In return, the EU will provide enhanced access for Indian exports, including textiles, apparel, jewelry, chemicals, pharmaceuticals, and electronics.

Olive oil producers are expected to be among the biggest winners, with tariffs dropping from 45% to zero over five years. Bread and other bakery products will also be permitted to enter the market with zero tariffs.

At the same time, Indian negotiators sought to maintain protections for domestic manufacturers and mass-market segments. According to The Economic Times, budget-friendly electric vehicles, which are largely manufactured in India and dominated by domestic players, are expected to remain shielded from direct competition.

Trade talks between the two parties were relaunched in 2022, following a long gestation period due to “mutually sensitive” issues such as agriculture and the automotive sector.

For New Delhi, which has borne the brunt of punitive US tariffs, this agreement could provide a much-needed boost. Since Donald Trump imposed a 50% tariff on Indian goods in August of last year, India has been seeking alternative markets for its exports and signing trade deals with multiple nations.

This marks New Delhi’s fourth major trade agreement since the US—India’s largest export market and a vital trading partner—began imposing high tariffs. Over the past seven months, India has also signed trade pacts with the UK, Oman, and New Zealand.

According to European Commission data, the value of goods traded between India and the EU exceeded €120 billion (approximately $140 billion) in 2024, making the bloc New Delhi’s largest trading partner.

Machinery and equipment, chemicals, base metals, minerals, and textiles are India’s primary exports to the EU. In the year ending March 2025, India’s total trade in goods reached $136 billion.

India is the EU’s ninth-largest trading partner, accounting for 2.4% of the bloc’s total trade in goods in 2024. This figure remains significantly behind major partners such as the US (17.3%), China (14.6%), or the UK (10.1%).

The EU’s primary exports to India include machinery and equipment, transport equipment, and chemicals. According to data for the 2025 fiscal year, high-quality machinery was India’s largest import category from the EU, valued at $13 billion.

European Commission President Ursula von der Leyen stated at the World Economic Forum in Davos on January 20 that the bloc is committed to choosing “fair trade over tariffs, partnership over isolation, and sustainability over exploitation.”

Total Indian exports to the six major EU markets (the Netherlands, Germany, Italy, Spain, France, and Belgium) amounted to $43.8 billion in the nine-month period ending in December, while exports to the US alone reached $65.88 billion.

Experts suggest that while India’s agreement with the EU represents a significant milestone, it will not replace the India-US partnership.

In 2024, India’s trade surplus in goods with the US stood at $45.8 billion, while the figure for trade with the EU was considerably lower at $25.8 billion.