Why the India-EU Free Trade Agreement Is a Strategic Turning Point for India? Trending
Why the India-EU Free Trade Agreement Is a Strategic Turning Point for India? Trending
- On 27 January 2026, India and the European Union signed a landmark trade agreement, marking a major step toward lowering trade barriers between the two economies.
- Over 90% of goods traded between India and the EU will eventually become tariff-free, improving price competitiveness for Indian exports.
- The agreement strengthens India’s export-led growth by supporting manufacturing, jobs, and industrial expansion.
- For the EU, it provides deeper and more stable access to one of the world’s fastest-growing large economies.
- Strategically, the deal helps India diversify trade partnerships and reduce reliance on a narrow set of global markets.
- Investors should focus on companies positioned to benefit from deeper India–EU integration rather than short-term market reactions.
- For investors, the agreement reshapes long-term opportunities in export-led manufacturing, logistics, and EU-linked supply chains.
Who makes up the European Union?
The European Union (EU) is a political and economic bloc of 27 countries:
Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden.
India- European Union trade
India–EU trade was already substantial even before the FTA, underscoring the depth of existing economic ties. The level of India-EU merchandise trade during the fiscal year ended 31 March 2025 amounted to USD 136.54 billion; of which, India exported goods valued at USD 75.85 billion and imported goods valued at USD 60.68 billion from the EU. As a result of this merchandise trade, India enjoys a trade surplus with the EU. The services trade between the two regions is also quite large, at USD 83.10 billion, which indicates the significant contribution of Indian IT services, professional services and business services to trade with the EU (Press Information Bureau (PIB), Government of India).
Major Trade Items Between India and the European Union (2024)
| Category | What India Imports from EU | Value (€ mn) | What India Exports to EU | Value (€ mn) |
|---|---|---|---|---|
| Machinery & transport equipment | Engineering goods, auto components, transport equipment | 24,778 | Industrial machinery, transport equipment | 19,312 |
| Chemicals & related products | Organic & specialty chemicals, pharmaceuticals | 7,931 | Chemicals, specialty inputs | 16,485 |
| Manufactured goods (by material) | Iron & steel products, industrial materials | 6,664 | Metal products, industrial materials | 14,318 |
| Miscellaneous manufactured articles | Textiles, apparel, consumer goods | 4,333 | Consumer manufactures, equipment | 9,038 |
| Crude materials (non-fuel) | Ores, minerals, raw materials | 3,373 | Raw industrial materials | 1,129 |
| Food & live animals | Agricultural products, marine exports | 531 | Food products | 3,181 |
| Mineral fuels & lubricants | Limited exports | 443 | Refined fuels, lubricants | 7,068 |
“India’s economy has expanded rapidly in recent years, with GDP rising from $2.7 trillion in 2020 to about $4.2 trillion in 2025, lifting its share of global output to nearly 3.7%. By contrast, the euro area remains a much larger economy at $16.8 trillion, but its share of global GDP has been largely stable at around 14.8–15%, reflecting faster growth in emerging markets like India (source- IMF world economic outlook)”.
While India has increased in popularity as a trading partner for the EU over the last decade, India is still a relatively small trade partner for the EU. In fact, India is ranked as the ninth largest trading partner of the EU, accounting for only 2.4% of total EU goods traded.
Therefore, India continues to be an important trading partner for the EU, along with the US and China, because of its economic growth.
Monthly trade data from recent years shows that EU imports from India have been rising steadily, especially in manufactured goods.
What is a Free Trade Agreement (FTA)?
A Free Trade Agreement (FTA) is defined as a treaty between two entities to reduce or eliminate tariffs on goods traded between the two parties. This would result in lower costs for importing and exporting goods, increased trade, increased foreign investment and job creation. Thus, countries use Free Trade Agreements when they want to establish stable long-term trading relationships with multiple partners instead of relying on only one or two primary trading partners.
What Is the India – EU FTA?
The India – EU Free Trade Agreement constitutes one of the largest Free Trade Agreements on the globe, with access to nearly 2 billion people and approximately twenty-five percent of the World’s GDP. Discussions between India and the EU regarding the FTA began in 2007, however, the negotiations progressed slowly until they were subsequently stalled in 2013 due to key negotiation issues including Automotive Industry, Wine, Data Protection, Intellectual Property, and Movement of Professionals. After over eight years of no formal progress, negotiations resumed formally in 2022, because of evident changes that have occurred in the world economy.
Negotiations had been ongoing between India and the European Union (EU) beginning in 2007 with very little progress being made, however, recently due to COVID-19 disruptions, changes within global supply chains, and the China +1 Strategy there is now momentum for finalizing a trade agreement. As of late 2023, the two parties are very close to finalizing the Free Trade Agreement and expected by 2025-26 that they will close the deal.
India–EU FTA: Key Tariff Cuts
| Sector / Product | EU Tariffs on Indian Exports | Timeline (EU) | India Tariffs on EU Imports | Timeline (India) |
|---|---|---|---|---|
| Textiles & Apparel | Fully removed | Immediate | — | — |
| Leather & Footwear | Fully removed | Immediate | — | — |
| Gems & Jewellery | Largely eliminated | Immediate | — | — |
| Sports goods & Toys | Zero duty | Immediate | — | — |
| Marine products | Zero / phased removal | Immediate to 3–5 yrs | — | — |
| Chemicals & Plastics | Zero duty | Immediate | Reduced (up to 22%) | Phased |
| Machinery & Engineering | Zero duty | Immediate | Reduced (up to 44%) | Phased |
| Automobiles (cars) | Limited access | Quotas / phased | Cut from 110% → 10% | 5–10 yrs |
| Auto components | — | — | Duties eliminated | 5–10 yrs |
| Wines & Spirits | — | — | High tariffs reduced (150% to 20%) | Phased |
| Sensitive agriculture | Protected | — | Protected | — |
Overall Coverage at a Glance
| Side | Tariff Lines Covered | Trade Value Covered |
|---|---|---|
| EU offer to India | 97% of tariff lines | 99.5% of India’s exports |
| India offer to EU | 92.1% of tariff lines | 97.5% of EU exports |
“ India and the EU will allow temporary entry and stay of professionals, including business visitors, intra-corporate transferees, contractual service suppliers, and independent professionals. Analysts believe India’s IT services, professional services, and education sector are well-positioned to benefit from these provisions”.
Why the India–EU FTA Matters for India?
This FTA matters for India because of following reasons-
- By eliminating tariffs on more than 90% of exports, the FTA will reduce the price of Indian textiles, clothing, leather, precious stones, engineering products, and chemicals; thereby increasing their competitiveness in Europe. The creation of millions of jobs will support the ongoing employment growth in labour-intensive sectors such as textiles, footwear, seafood and small medium-sized enterprises (SMEs). In turn, improved access to cheaper and easier source machinery, technology and inputs from Europe will be instrumental in supporting India’s overall manufacturing efforts as well as boosting the success of the ‘Make in India’ initiative.
- With the new mobility provisions contained within this Agreement, India’s – IT Professional/Consultants, Educators and Service Providers – will now have access to easier work options in Europe.
- Through the impact of the FTA, India will be positioned more closely to Western economies as well as strengthen its role within global supply chain networks during the current geopolitical uncertainties.
- European businesses will also be encouraged to invest within India as a long-term manufacturing and export location through the establishment of stable and predictable trade regulations associated with this FTA.
- The FTA will also provide India with additional options for diversifying its supply chains, thereby dramatically decreasing its dependence on China for its industrial inputs and significantly reducing exposure to the trade uncertainties associated with US tariffs.
India’s trade deficit with China is significant ( $ -99,195.14 million in 2024-25), particularly regarding machinery, electronics, and other types of industrial inputs
Despite the fact that India has a trade surplus with the USA ( $ 40,889.09 million), Washington has used tariffs and trade pressure more frequently which increases uncertainty for Indian exporters.
- Short-term market volatility may persist as previously protected sectors adjust to increased competition.
- Export-oriented manufacturing, labour-intensive industries (such as textiles and footwear), and logistics-linked businesses are structurally positioned to benefit.
- Companies integrated into European supply chains may see gradual gains as trade flows deepen over time.
- The full economic impact of the India–EU FTA will unfold over several years rather than immediately.
- Investors should focus on long-term positioning and sectoral exposure, rather than reacting to near-term price movements.
Sources & Methodology
- EU–India merchandise trade data:Sourced from Eurostat Comext (Statistical Regime 4).
- Coverage:• Annual data: 2022–2024• Monthly data: Jan–Nov 2025 (provisional)
- Primary table used:Eurostat Data Browser – EU imports/exports by partner country – https://ec.europa.eu/eurostat/databrowser/view/ds-059331__custom_19811137/default/table
- Units & conversions: Trade values are reported in million euros and € billion, rounded where ever shown.
- Sector-wise trade breakdown:
Goods classified using SITC Revision 4 sections (0–9), as reported by Eurostat. - GDP data: Nominal GDP figures sourced from the IMF World Economic Outlook (April 2025), in current USD.
- India data from IMF country reports
- EU and World data from IMF country group aggregates
- Global GDP share: Calculated as(Country or region GDP ÷ World GDP) × 100.
- Policy context: FTA details and official figures referenced from the Press Information Bureau (Government of India), The Economic Times, The Hindu and European Commission trade publications.
- India–U.S. and India–China trade data:Directorate General of Commercial Intelligence & Statistics (DGCIS), Government of IndiaTrade Statistics Portal (EIDB)Path: EIDB → Total Trade → Country-wise Trade – https://tradestat.commerce.gov.in/eidb/country_wise_ttrade
Note: Monthly trade figures are provisional and may be revised. Minor differences can occur due to rounding and reporting updates.
Appendix
EU–India Merchandise Trade (Annual)
| Year | India Imports from EU (€ billion) | India Exports to EU (€ billion) |
|---|---|---|
| 2022 | 67,76,83,74,430 | 47,52,08,05,096 |
| 2023 | 65,40,79,51,268 | 48,47,70,78,111 |
| 2024 | 71,44,76,54,989 | 48,79,40,89,632 |
Rounded to 1 Decimal
| Year | EU Imports from India (€, billion) | EU Exports to India (€, billion) | Total Trade (€, billion) |
|---|---|---|---|
| 2022 | 67.8 | 47.5 | 115.3 |
| 2023 | 65.4 | 48.5 | 113.9 |
| 2024 | 71.4 | 48.8 | 120.2 |
EU–India Merchandise Trade (Monthly, 2025)
| Month (2025) | EU Imports from India | EU Exports to India |
|---|---|---|
| Jan | 5,925,135,583 | 3,610,276,751 |
| Feb | 5,790,127,878 | 3,916,218,946 |
| Mar | 6,126,120,270 | 4,202,154,685 |
| Apr | 6,234,913,900 | 4,129,564,174 |
| May | 5,851,035,336 | 3,600,517,968 |
| Jun | 5,542,113,910 | 3,695,005,991 |
| Jul | 5,919,834,795 | 4,179,767,467 |
| Aug | 5,039,215,345 | 3,454,265,610 |
| Sep | 5,623,899,324 | 4,295,949,474 |
| Oct | 6,125,366,002 | 4,390,453,159 |
| Nov | 5,752,027,616 | 4,190,889,867 |
GDP at Current Prices (USD, Billions)
| Country / Region | 2022 | 2023 | 2024 | 2025* | 2026* | 2027* |
|---|---|---|---|---|---|---|
| India | 3,346.11 | 3,638.49 | 3,909.10 | 4,187.02 | 4,601.23 | 5,069.47 |
| Euro Area | 14,464.53 | 15,789.11 | 16,396.12 | 16,818.96 | 17,453.95 | 18,034.45 |
| World | 101,948.24 | 106,431.76 | 110,549.44 | 113,795.68 | 119,095.41 | 124,961.76 |
Share of Global GDP (%)
| Region | 2022 | 2023 | 2024 |
|---|---|---|---|
| India | 3.42% | 3.54% | 3.68% |
| Euro Area | 14.83% | 14.83% | 14.78% |
India–China Merchandise Trade (Annual)
| Indicator | 2020–21 (US$ million) | 2021–22 (US$ million) | 2022–23 (US$ million) | 2023–24 (US$ million) | 2024–25 (US$ million) |
|---|---|---|---|---|---|
| India’s Exports to China | 21,187.15 | 21,259.79 | 15,306.10 | 16,658.91 | 14,252.21 |
| Export Growth (%) | — | 0.34 | -28.00 | 8.84 | -14.45 |
| Share of India’s Total Exports (%) | 7.26 | 5.04 | 3.39 | 3.81 | 3.26 |
| India’s Imports from China | 65,212.25 | 94,570.57 | 98,505.77 | 101,735.76 | 113,447.34 |
| Import Growth (%) | — | 45.02 | 4.16 | 3.28 | 11.51 |
| Share of India’s Total Imports (%) | 16.53 | 15.43 | 13.76 | 15.00 | 15.73 |
| Total Bilateral Trade | 86,399.40 | 115,830.36 | 113,811.87 | 118,394.67 | 127,699.55 |
| Trade Growth (%) | — | 34.06 | -1.74 | 4.03 | 7.86 |
| Trade Balance (India) | -44,025.10 | -73,310.78 | -83,199.66 | -85,076.85 | -99,195.14 |
India–United States Merchandise Trade (Annual)
| Indicator | 2020–21 (US$ million) | 2021–22 (US$ million) | 2022–23 (US$ million) | 2023–24 (US$ million) | 2024–25 (US$ million) |
|---|---|---|---|---|---|
| India’s Exports to the U.S. | 51,623.14 | 76,167.01 | 78,542.60 | 77,515.03 | 86,514.28 |
| Export Growth (%) | — | 47.54 | 3.12 | -1.31 | 11.61 |
| Share of India’s Total Exports (%) | 17.69 | 18.05 | 17.41 | 17.74 | 19.77 |
| India’s Imports from the U.S. | 28,888.10 | 43,314.07 | 50,863.87 | 42,195.49 | 45,625.20 |
| Import Growth (%) | — | 49.94 | 17.43 | -17.04 | 8.13 |
| Share of India’s Total Imports (%) | 7.32 | 7.07 | 7.10 | 6.22 | 6.33 |
| Total Bilateral Trade | 80,511.24 | 119,481.08 | 129,406.47 | 119,710.52 | 132,139.48 |
| Trade Growth (%) | — | 48.40 | 8.31 | -7.49 | 10.38 |
| Trade Balance (India) | 22,735.05 | 32,852.94 | 27,678.73 | 35,319.54 | 40,889.09 |
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