After nearly two decades of complex and often stalled negotiations, the European Union and India have reached a landmark free trade agreement. Announced in New Delhi in January 2026 by European Commission President Ursula von der Leyen and Indian Prime Minister Narendra Modi, the deal has been hailed as historic in both economic and geopolitical terms. Modi described it as the “mother of all agreements,” emphasizing the vast opportunities it creates for the 1.4 billion people of India and the citizens of Europe. For the EU, the agreement marks a decisive step toward diversification, growth, and strategic autonomy in an increasingly fragmented global economy.
At its core, the EU-India free trade agreement aims to significantly reduce tariffs and non-tariff barriers, thereby boosting the exchange of goods and services. The two partners together represent nearly a quarter of global GDP and almost a quarter of the world’s population. In that sense alone, the creation of a free trade zone encompassing close to two billion people is remarkable. Ursula von der Leyen underscored this dimension by calling the agreement a deepening of the partnership between “the world’s largest democracies” and a signal that rule-based international cooperation can still deliver tangible results.
From a purely economic perspective, the agreement offers enormous potential, particularly for European exporters. According to EU estimates, the deal could lead to a doubling of EU exports to India by 2032. This would be achieved by abolishing or reducing tariffs on 96.6 percent of the value of EU goods exported to India. The European Commission estimates that tariff reductions alone could save European companies around four billion euros per year in duties.
One of the biggest beneficiaries is expected to be the German automotive industry. Until now, India has imposed import duties of up to 110 percent on cars from the EU, making European vehicles prohibitively expensive for most consumers. Under the new agreement, tariffs on up to 250,000 vehicles per year will be gradually reduced to 10 percent. In addition, import duties on automotive components are set to be completely eliminated within five to ten years. This opens the door not only for increased exports, but also for deeper industrial cooperation and investment. Other sectors stand to gain as well. High tariffs of up to 44 percent on machinery, 22 percent on chemicals, and 11 percent on pharmaceuticals will be largely dismantled. For an export-oriented economy like Germany’s, and for Europe’s advanced manufacturing and chemical industries more broadly, these changes could significantly improve competitiveness in one of the world’s fastest-growing markets.
India’s importance for the EU extends well beyond trade figures. With more than 1.45 billion inhabitants, India has overtaken China as the world’s most populous country. Its economy continues to grow at a robust pace, and its expanding middle class represents a massive source of future demand. Despite this, trade with India currently accounts for only around 2.5 percent of the EU’s total goods trade – far less than China’s share of nearly 15 percent. That imbalance highlights both the opportunity and the strategic rationale behind the agreement. While trade between the EU and India has already grown by nearly 90 percent over the past decade, the potential remains largely untapped. More than 6,000 European companies are already operating in India, but the new agreement is expected to encourage many more to invest, produce, and innovate there.
Crucially, the deal also aims to reduce “undesirable dependencies” on other countries. In an era marked by aggressive tariff policies from the United States and China’s growing geopolitical and economic assertiveness, the EU is seeking to diversify its trade relationships. India, as a large democracy with a distinct strategic outlook, is seen as a natural partner in this effort.
The timing of the agreement is no coincidence. Global trade is increasingly shaped by protectionism, geopolitical rivalry, and the weaponization of economic interdependence. Against this backdrop, the EU-India deal sends a clear political message: open markets and multilateral cooperation remain viable alternatives to economic nationalism.
While the agreement is not as comprehensive as the EU’s recent free trade pact with the Mercosur countries in South America, its strategic weight is arguably greater. India’s size, growth trajectory, and geopolitical positioning make it a pivotal actor in the emerging multipolar world order. Strengthening ties with New Delhi allows the EU to balance its relations with China and the United States, while reinforcing its own role as a global economic actor.
Despite the celebratory tone, the agreement will not take effect immediately. According to Indian officials, the text will now undergo a legal review lasting five to six months. Both sides expect the agreement to enter into force within a year. As with any large trade deal, ratification and implementation will require political consensus, regulatory adjustments, and sustained commitment. Moreover, not all concerns have disappeared. Trade agreements of this scale often raise questions about labor standards, environmental protection, and market access in sensitive sectors. Balancing economic openness with social and environmental safeguards will remain an ongoing challenge for both partners.
Ultimately, the EU-India free trade agreement represents more than a reduction in tariffs. It is a statement of confidence in cooperation between democracies at a time when global rules are under pressure. For European industry, it promises new markets and growth opportunities. For India, it offers deeper integration into global value chains and access to advanced technologies. If implemented successfully, the agreement could become a cornerstone of a new EU-India partnership – one that is economic, political, and strategic in nature.
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