“We have created a free trade zone of two billion people.” That was how European Commission President Ursula von der Leyen summed up Tuesday’s landmark pact between India and the European Union, as the two sides finally clinched a free trade agreement nearly two decades in the making.
Von der Leyen was in New Delhi alongside European Council President Antonio Costa as Prime Minister Narendra Modi confirmed the conclusion of the India–EU Free Trade Agreement.
Modi said the accord would strengthen manufacturing in India, expand services and bolster global investor confidence in Asia’s third-largest economy. “People around the world are calling this ‘the mother of all deals’,” he said. “Let’s be a double-engine of growth.”
The agreement links two economies that together account for roughly a quarter of global GDP and creates what Brussels describes as a “strategic alignment between the world’s two largest democracies” amid rising geopolitical tensions.
The EU, which represents a 450-million-strong market, is framing the pact as far more than a trade accord, saying it will strengthen both economic and political ties.
“Europe and India are making history today,” von der Leyen, who was the Republic Day chief guest, said. “This is only the beginning.”
The trade talks gathered pace as both sides began searching for new partners in response to Washington’s punishing tariff policies.
Europe is seeking to reduce its US dependence, while India, facing 50-per-cent American tariffs on key exports, is racing to develop new markets.
“Diversification is absolutely essential,” said Amitendu Palit, research lead on trade and economics at the Institute of South Asian Studies, speaking to Bloomberg.
The scale of the agreement is unprecedented for both sides. The EU says it expects its exports to India to double as tariffs are removed or sharply reduced, saving European exporters up to €4 billion a year in duties.
Under the deal, the EU will eliminate or cut duties on 99.5 per cent of Indian goods over seven years, delivering a major boost to labour-intensive sectors such as textiles, apparel, leather, footwear, gems and jewellery, marine products and sports goods.
These industries have been among the hardest hit by US trade barriers.
India is getting “preferential access to one of the world’s richest markets,” the EU said in a statement. For Europe, the pact marks a decisive step towards anchoring itself more firmly in Asia at a time of strained relations with the US.
India, meanwhile, will gradually reduce tariffs on 97 per cent of EU trade by value, opening its tightly guarded market to European manufacturers while retaining safeguards.
New Delhi has agreed to tariff cuts for the EU that it has not offered to any other partner, giving European firms a significant competitive edge in India’s fast-growing market of 1.45 billion people.
One of the biggest breakthroughs for the EU is in automobiles.
In good news for BMW, Mercedes and Volkswagen, India will allow up to 250,000 European-made vehicles a year to enter at sharply reduced duties, with tariffs on higher-end cars falling over time from as high as 110 per cent to 10 per cent.
Cheaper mass-market vehicles selling below Rs 25 lakh will remain protected, a move intended to spur European manufacturers to produce locally in India.
Tariffs on premium European wines will also be cut in stages, falling from 150 per cent to as low as 20 per cent over seven years, while lower-priced wines are excluded.
Duties on olive oil and a range of processed foods will be eliminated, though India has drawn firm red lines around dairy, cereals, meat and other sensitive agricultural products, reflecting food security and farmer concerns.
Beyond goods, services have emerged as one of the EU’s biggest wins.
Brussels says the agreement contains India’s most ambitious commitments on financial services in any trade deal. The EU has also opened 144 services sub-sectors in such areas as banking and insurance to India and made commitments on student mobility and post-study work visas.
For India, the services and digital chapters are critical. The agreement creates a more favourable operating framework for Indian IT, fintech and digital service providers operating in Europe. Indian manufacturers are also expected to become more deeply integrated into European supply chains for electronics, engineering goods, auto parts and pharmaceuticals, with customs and regulatory procedures simplified to make trade easier and cheaper.
Sustainability was another contentious area.
India resisted Europe’s carbon border tax, which threatens to raise costs for exports such as steel, aluminium and cement. While the EU granted India no exemption, it promised that any flexibility offered to other countries would also apply to India, alongside technical support. The pact also includes commitments on labour standards, women’s advancement and climate cooperation.
The pact, which comes on the heels of recent trade agreements with the UK, New Zealand and Oman, will now undergo legal vetting, known as “scrubbing”. That process is expected to take around six months, before the deal is sent to the European Parliament for ratification.
If approved, the FTA could enter into force early next year.
Bilateral trade in goods between India and the EU now stands at about $136 billion a year and is projected to exceed $200 billion within a few years. Services trade, already worth around $80 billion, is also expected to expand sharply.
Next on India’s trade agenda is a push for a deeper partnership with the Mercosur trading bloc made up of Brazil, Argentina, Paraguay and Uruguay as Modi seeks a deal that would give New Delhi reliable long-term access to key raw materials such as lithium and copper, while deepening energy cooperation.