India and the European Union are in the final stages of negotiating a landmark free trade agreement, which could be concluded as early as Tuesday, January 27.
This broad-based free trade pact, under discussion since 2007, marks a milestone development in India-EU trade relations after 18 years of protracted negotiations.
Notably, the formation of this trade agreement comes at a time when former U.S. President Trump frequently weaponized trade and tariffs to secure favorable terms for Washington. Against the backdrop of rising protectionism, this proposed deal could fundamentally reshape India-EU trade dynamics.
The "Mother of All Deals" is set to be finalized.
Last week, European Commission President Ursula von der Leyen stated at the Davos Forum that the EU was on the verge of signing a historic trade agreement with India, indicating the long-standing negotiations had concluded. She noted the deal would create a market for 2 billion people.
On January 25, von der Leyen arrived in India for a three-day visit. Together with European Council President António Luís Santos da Costa, she attended the annual Republic Day celebrations in New Delhi on the 26th as the chief guest.
Von der Leyen is then scheduled to hold India-EU summit talks with Prime Minister Narendra Modi, where the two sides are expected to finalize details and approve the agreement, dubbed the "mother of all agreements."
The EU is India's largest trading partner. Official data shows that for the 2024-2025 fiscal year, bilateral goods trade totaled approximately $136 billion, with Indian exports around $76 billion and imports about $60 billion. Nearly 6,000 European companies operate in India.
If signed, this would become India's largest and most comprehensive free trade agreement to date, granting India preferential access to all 27 EU member states under a single framework, while helping European firms increase exports to India.
Projections suggest the deal could boost India's trade surplus with the EU by over $50 billion by the 2031 fiscal year. Once implemented, the EU's share of India's total exports could jump from 17.3% in FY2025 to around 22%-23%.
Ajay Srivastava, founder of the Indian think tank Global Trade Research Initiative (GTRI), stated, "India exports about $76 billion in goods to the EU while importing $61 billion, resulting in a trade surplus, but the EU's withdrawal of Generalized System of Preferences (GSP) benefits in 2023 weakened the competitiveness of many Indian products."
Currently, the EU's average tariff on Indian goods is relatively low at about 3.8%, but labor-intensive sectors like textiles and apparel face tariffs around 10%.
"The free trade agreement will restore lost market access, reduce tariffs on key exports such as apparel, pharmaceuticals, steel, petroleum products, and machinery, and help Indian businesses better absorb the impact of increased U.S. tariffs," Srivastava said.
Simultaneously, India is also seeking employment opportunities for its professional talent and boosting exports of IT services.
However, India is expected to shield politically sensitive sectors like agriculture and dairy from the agreement, while tariffs in industries such as automobiles, wine, and spirits are likely to be phased down, consistent with India's approach in previous deals with countries like the UK.
Nevertheless, despite progress, some significant disagreements reportedly remain.
For Europe, intellectual property protection is a key area of focus, with the bloc seeking better data protection and stricter patent norms.
For India, the new carbon tax called the Carbon Border Adjustment Mechanism (CBAM), implemented by Europe starting this year, is a major point of contention in the discussions.
Srivastava indicated that even if import duties are eliminated under the FTA, the CBAM "effectively amounts to a new border tax on Indian exports." "This is particularly disadvantageous for MSMEs, which face high compliance costs, complex reporting requirements, and the risk of penalties due to inflated default emission factors."
Srivastava said whether the agreement ultimately becomes a "growth-enhancing partnership or a strategically asymmetric deal" will depend on how these issues are resolved.
EU Auto Tariffs: 110% to 40%.
On the EU side, its exports to India currently face higher barriers, with a trade-weighted average tariff of approximately 9.3% on $60.7 billion worth of goods in the 2024/2025 period.
Tariffs are particularly high for automobiles, auto parts, chemicals, and plastics. Reducing these tariffs would open new opportunities in the automotive, machinery, aircraft, and chemicals sectors.
Citing sources, Reuters reported that India plans to slash tariffs on EU car imports from 110% to 40%, representing the most aggressive step yet to open up the sector. The Modi government has reportedly agreed to immediately cut tariffs, via a quota system, on EU vehicle imports priced over €15,000.
The sources added that this rate would be further reduced to 10% over time, simplifying market entry for European carmakers like Volkswagen, Mercedes-Benz, and BMW.
Both India's Commerce Ministry and the European Commission declined to comment on the matter.
India is the world's third-largest automobile market after the U.S. and China, but its domestic industry has been heavily protected. New Delhi currently imposes tariffs of 70% to 110% on imported cars, a rate frequently criticized by industry executives, including Tesla CEO Elon Musk.
European car manufacturers currently hold less than a 4% share of the Indian car market. The market is dominated by Japan's Suzuki Motor and domestic brands Mahindra & Mahindra and Tata Motors, which together command about two-thirds of the market.
Lower import taxes would boost European automakers like Volkswagen, Renault, and Stellantis, as well as premium carmakers like Mercedes-Benz and BMW, which produce locally but have struggled to achieve greater growth partly due to high tariffs.
To protect investments by Indian firms like Mahindra and Tata Motors in the nascent electric vehicle (EV) segment, fully electric vehicles will reportedly be excluded from the import tariff cuts for the first five years. After five years, EVs would receive similar tariff reductions.
With the Indian market projected to reach annual sales of 6 million vehicles by 2030, some companies are already planning new investments. For instance, Renault is reportedly re-entering the Indian market with a new strategy, seeking growth outside Europe.
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