Why the India–EU free trade deal matters more than ever

In January 2026, the European Union and India inked a Free Trade Agreement (FTA). It covers almost all imports and exports between India and the EU’s Common Market. The tedious negotiations had taken 20 years. Tariffs on 97% of goods will be reduced or eliminated. This will save EUR 4 billion a year in duties. This will make Indian goods more competitive in the EU.

The EU is a major export market for India. Unlike others such as China and the USA, the EU is a reliable trade partner. China and India have fought militarily only a few years ago, and a full-scale war cannot be ruled out. Under Trump, the United States was erratic and imposed tariffs on India. Russia’s economy is in long-term decline, and trade with Russia leads to US sanctions. With the EU, there will be no such travails.

The EU has 27 member states. However, the EU’s Common Market also includes countries that are not in the EU, such as Switzerland and Norway, and several microstates such as Monaco, Liechtenstein and Andorra.

There was a summit between India and the EU hosted in New Delhi. The objective was to make trade as smooth as possible by allowing as many goods as possible, and services, from each partner to be sold in the other. Both India and the EU had to be confident that the goods and services sold by the other conformed to their health and safety regulations. They have aligned regulations where possible.

The President of the European Commission, Ursula von der Leyen, was there in Delhi.

Leaders on both sides hailed the deal as a breakthrough. It is thought that it will stimulate trade appreciably and enrich both. Leaders have spoken of a symbiosis. It is thought almost certain that the Council of Ministers of India will approve it. The FTA also requires approval of the Council of the European Union and ratification by the European Parliament. The Council of the European Union consists of the prime ministers of all 27 EU states.

Making a deal with the EU is always tricky because its 27 member states are theoretically independent. Some issues can be vetoed by a single member state. Malta, with 500,000 people, could veto a decision agreed by the other 26 member states with a combined population of 450 million. EU member states have different identities. Some items are important to some member states, such as wine exports for France, which is unimportant for Finland because it does not produce wine. The automotive industry is vital for Germany but does not matter for Luxembourg, which does not manufacture cars. German car manufacturers are very keen to sell more to India and were adamant that import taxes must be reduced.

Negotiating inside the EU is as complex as negotiating with others. It is like herding cats. The EU’s strategy in negotiations is to string things out as long as possible to exhaust the other side and even bore them into submission.

The United Kingdom left the EU in 2020. It is not part of the EU’s Common Market either. Having the UK out of the EU makes the deal easier for India. With the British uninvolved, there can be no sense that this is India capitulating to the former colonial metropole. India did very little trade with the United Kingdom in recent years anyway. Belgium, with a population of only 10 million, trades with India more than the UK, with 70 million people, does.

In 2007, the EU and the Government of India commenced a parley about a trade agreement. In those days, the United Kingdom was still an EU member state. The talks broke down after six years due to a failure to make progress on intellectual property, regulation and access to markets. It was not until 2022 that talks were resumed.

The India–EU FTA creates a free trade zone of almost 2 billion people. It will comprise around 25% of the world’s economy. It will therefore be much bigger than the US economy. The free trade does not take effect instantly. Tariffs are being phased out.

Only about 8% of Indians have a middle-class standard of living by EU standards. But that is still 130 million people. That is a very lucrative market for EU exporters.

The European Commission Vice-President, Kaja Kallas, was instrumental in the negotiations. She explicitly linked trade to security cooperation. The EU is worried about Russia and about China. Although India has cordial relations with Russia, its relations with China are often strained. The EU perceives India as delightfully democratic in a region scarred by authoritarianism.

Russia borders several EU countries: Finland, Poland, Latvia, Lithuania and Estonia. The latter three were all Soviet republics, and they are worried about Russian irredentism.

The EU was not happy about India participating in Russia’s Zapad 2025 military exercises. President Putin was treated to a state visit to India in 2025, the supreme expression of amity between sovereign states. Despite the EU disagreeing with Indian foreign policy, it does not dispute India’s absolute independence and entitlement to formulate its own foreign policy.

There are those in the EU who say, ‘India is not our friend.’ They say that cosying up to India is naïve. They note that India is the biggest single market for Russian arms. Indian refineries have bought huge quantities of Russian oil since 2022.

The rejoinder to this argument is that the EU cannot bully India into abandoning Russia. The EU must persuade India by making more attractive offers. In purchasing cut-price Russian oil, India was pursuing its national interest. India would have to be persuaded not to do so. Russian military technology is at least a generation behind anything the EU makes. The inferiority of Russian military technology has been proven time and again in Ukraine. Therefore, EU defence manufacturers can convince India to purchase their products if they offer low prices.

China is the world’s second biggest economy, but it is stalling. Before 2008, China regularly posted double-digit GDP growth per annum. It is now thought to be 3%. Moreover, China’s population is greying. It faces a demographic death spiral. Some in the EU believe that China will become a less and less significant economy. By 2100, China will still be a major economy but not in second place: more like fourth. Therefore, forging friendly trade ties with India, which is on the up and up, is wise.

There will be losers from the deal both in India and the EU. High-end car manufacturers in India are worried by competition from EU auto manufacturers. In the EU, farmers fear being undercut by cheap Indian foodstuffs. EU textile businesses say they will go bust as the EU will be flooded with Indian textiles, and the EU simply cannot make clothes as cheaply as India.

The EU is also keen for India to do more on climate change. India is pumping out a lot of carbon to fuel its growing industry and provide electricity to its growing population. Climate change knows no borders, and carbon emissions from India impact the EU. The EU has cleaned up its air and reduced its carbon emissions drastically. That is partly because the EU has fewer and fewer factories and is about service industries. Moreover, the EU is mostly rich and can afford to transition to costly clean energy. India says it must prioritise economic growth to lift its people out of poverty just as Europe did in the Industrial Revolution. Only when India has abolished poverty can it afford to fuss about climate change. This FTA will help India towards both goals.

The FTA was signed in Hyderabad House. Prime Minister Modi was present. The President of the European Council was there: Antonio Costa. Costa and von der Leyen had been chief guests at India’s Republic Day Parade the day before. Costa is Portuguese and tactfully avoided mention of Portugal and India fighting over Goa in 1961.

Narendra Modi was clearly very satisfied with what he has achieved. The EU and India also signed a Security and Defence Partnership. This is for the furtherance of cooperation on anti-piracy operations in the Indian Ocean; combating terrorism, defence procurement and cyber defence.

A codicil to the FTA was a mobility and migration agreement. There are over 2 million people of Indian origin in the EU. Most of them are European citizens. India does not permit dual citizenship. Shashi Tharoor is one of those who says that India ought to allow it. India wants its people to be allowed to immigrate to the EU, where they can obtain handsomely remunerated employment, remit money to India and sway these countries to be more pro-India. Moreover, they sometimes enhance their virtuosities and return to India to India’s benefit.

The EU has low fertility and needs Indian workers in all sectors. EU universities also want Indian students who pay hefty fees. Trump’s xenophobia has put people off studying in the USA. There are plenty of EU countries where you can study exclusively through English: Ireland, Malta and Cyprus were all part of the British Empire. In the Netherlands, Norway, Denmark, Finland and Sweden, 90% of people can speak English. Even Germany, Belgium, Italy, France and Czechia have universities that offer degrees through English.

Looking at the FTA, Pakistan is crying into its chai. The EU has offered no such trade deal to Pakistan. Many of the Indian goods that will now face low tariffs or no tariffs directly compete with Pakistan’s exports to the EU, such as rice and leather goods.