India and the European Union have finalized a long-awaited free trade agreement, marking one of the most significant economic partnerships in recent decades. Announced by Prime Minister Narendra Modi during India Energy Week, the deal has been described as the “mother of all agreements” and is expected to redefine trade flows between two of the world’s largest economic blocs.

The agreement comes after nearly 20 years of negotiations and creates a combined market of roughly 2 billion people. Together, India and the EU account for close to 25% of global GDP and nearly one-third of worldwide trade, making this pact a major development at a time when global commerce is under pressure from geopolitical tensions and rising protectionism.

Prime Minister Modi confirmed that detailed provisions of the deal will be unveiled jointly with European Commission President Ursula von der Leyen at the India–EU summit in New Delhi. He highlighted that the agreement will directly benefit several labor-intensive Indian industries, including textiles, gems and jewelry, leather, footwear, and manufacturing, calling it a major boost for exporters and small businesses alike.

“This agreement will be highly supportive for key sectors of our economy,” Modi said, congratulating stakeholders across multiple industries who contributed to finalizing the pact.

A strategic boost amid global trade pressures

For India, the timing is critical. The country has been grappling with the impact of steep U.S. tariffs imposed in August last year, including duties as high as 50% on certain Indian goods. As a result, New Delhi has accelerated efforts to diversify export destinations and reduce reliance on any single market.

The EU deal represents India’s fourth major trade agreement since those U.S. measures were introduced, following recent pacts with the United Kingdom, Oman, and New Zealand. Together, these agreements form part of a broader strategy to expand market access, stabilize export growth, and attract foreign investment.

While analysts note that an eventual India–U.S. trade deal would still be crucial, the EU agreement provides India with an immediate alternative pathway for scaling exports and strengthening supply chains across Europe.

In 2024, India recorded a goods trade surplus of $45.8 billion with the United States. By comparison, its surplus with the European Union stood at $25.8 billion, underscoring both the opportunity and the headroom for further growth in EU-bound trade.

Trade volumes and sector impact

According to European Commission figures, merchandise trade between India and the EU exceeded €120 billion (approximately $140 billion) in 2024, making the EU India’s largest overall trading partner in goods.

India currently ranks as the EU’s ninth-largest trading partner, accounting for about 2.4% of the bloc’s total goods trade. This trails far behind the EU’s biggest partners such as the United States (17.3%), China (14.6%), and the United Kingdom (10.1%), highlighting the potential for rapid expansion under the new framework.

India’s main exports to the EU include:

• Machinery and electrical appliances
• Chemicals and pharmaceuticals
• Base metals and mineral products
• Textiles and garments

On the other side, the EU primarily exports machinery, transport equipment, advanced manufacturing inputs, and chemicals to India.

During the nine months ending December, India’s exports to six key EU markets — the Netherlands, Germany, Italy, Spain, France, and Belgium — totaled $43.8 billion. In comparison, exports to the U.S. alone reached $65.88 billion over the same period, reinforcing why policymakers see Europe as a vital growth frontier.

The new FTA is expected to reduce or eliminate tariffs across a wide range of goods, simplify customs procedures, and improve access for services and investment. Industry leaders anticipate stronger participation from European firms in India’s manufacturing, renewable energy, and infrastructure sectors, while Indian companies gain improved access to high-value European markets.

Part of a broader shift toward partnership

Speaking earlier this month at the World Economic Forum in Davos, European Commission President Ursula von der Leyen emphasized the EU’s commitment to open and rules-based commerce, stating that Europe is choosing “fair trade over tariffs, partnership over isolation, and sustainability over exploitation.”

The India–EU agreement reflects this approach, positioning both sides as long-term partners in an increasingly fragmented global economy. Beyond trade in goods, the pact is also expected to strengthen cooperation in technology, clean energy, digital services, and resilient supply chains.

For India, the deal complements its agreements with the UK and the European Free Trade Association, further integrating the country into European economic networks and reinforcing its role as a global manufacturing and services hub.

What it means going forward

Economists view the agreement as a major milestone for India’s trade diplomacy, with the potential to lift exports, generate employment, and attract fresh foreign direct investment over the coming years. Sectors such as apparel, leather, gems and jewelry, auto components, and pharmaceuticals are expected to be among the biggest beneficiaries.

At the same time, experts caution that while the EU pact is transformative, it does not replace the strategic importance of the U.S. market. Instead, it strengthens India’s negotiating position globally and reduces vulnerability to unilateral trade actions.

As full details of the agreement emerge, businesses on both sides are preparing for a new chapter in India–Europe economic relations, one that promises deeper integration, broader market access, and a more balanced global trade footprint.

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