EU–India Seal Landmark Free Trade Deal After Two Decades of Talks
In a historic breakthrough, India and the European Union on January 27, 2026, finalised a sweeping free trade agreement in New Delhi, with European Commission President Ursula von der Leyen, European Council President António Costa, and Prime Minister Narendra Modi jointly sealing what officials describe as one of the most significant trade pacts in recent years. The deal links two economic blocs representing nearly two billion consumers and around a quarter of global GDP, aiming to strengthen economic ties at a time when global trade is increasingly fragmented. Until now, EU–India trade—valued at about €120 billion in goods and €60 billion in services—has been substantial but structurally imbalanced, with India facing higher average tariffs than European exporters.
At the core of the agreement is a sweeping reduction in customs duties. India has committed to cutting or removing tariffs on more than 90% of European exports, potentially saving EU firms up to €4 billion annually. Duties on European cars—previously exceeding 100%—will gradually fall to about 10% under specific conditions, while machinery, chemicals, pharmaceuticals, industrial equipment, and wines will also benefit from sharp reductions or full elimination of taxes. The textile sector is expected to emerge as a major winner, as European import duties of 10–16% on Indian textiles and apparel are removed, giving Indian exporters stronger access to a market that imports over $125 billion worth of such goods each year and is currently dominated by China.
The agreement is poised to reshape European value chains, encouraging sourcing diversification away from China, expanding India’s role in cotton, spinning, and weaving, and enabling higher-value processes like design and quality control to remain or return to Europe. However, gains in sectors such as automotive and aeronautics may unfold more gradually, and key frictions—such as non-tariff barriers and the EU’s carbon border adjustment mechanism—remain unresolved. While ratification is still pending, the pact signals a broader strategic realignment, positioning India as a credible industrial partner for Europe and offering the EU a pathway toward more resilient, diversified supply chains.
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