New Delhi, India – India and the European Union have signed a free trade agreement that both sides have hailed as “the mother of all deals”.
The agreement, announced on Tuesday, came together over nearly two decades of intermittent negotiations and during a geoeconomic crisis triggered by United States President Donald Trump’s trade war.
The deal between India and the 27-nation EU covers about 2 billion people and represents a combined market of nearly $27 trillion and about 25 percent of the global gross domestic product (GDP).
European Commission President Ursula von der Leyen and European Council President Antonio Costa joined Indian Prime Minister Narendra Modi in New Delhi on Monday as honorary guests for Republic Day and its annual military parade.
“This agreement will bring major opportunities for the people of India and Europe,” Modi said while addressing an energy conference virtually on Tuesday before an India-EU summit.
“Europe and India are making history today,” von der Leyen wrote in a post on X. “We have created a free-trade zone of two billion people, with both sides set to benefit. We will grow our strategic relationship to be even stronger.”
The deal is expected to significantly reduce tariffs for India and the EU.
So what’s in the deal? And how will Trump – who slapped India with 50 percent tariffs last year in part as punishment for continuing to buy Russian oil – take it?
What does the deal cover, and how significant is it?
The deal is India’s largest and most comprehensive trade agreement and covers goods, services and investments across the EU’s customs union.
In 2023, the EU withdrew its generalised scheme of preferences (GSP) benefits for India, exposing its exporters to higher tariffs. The new deal, analysts noted, could give India an edge in several sectors, including textiles, pharmaceuticals, machinery, steel, petroleum products and electrical equipment.
Overall, the EU is giving India access to 144 services subsectors while India is opening 102 subsectors to the EU, including in the financial, maritime and telecommunications industries.
On Tuesday, Modi told Indian workers and industry leaders in sectors such as textiles, gems and jewellery that “the agreement will prove very helpful for you,” adding that it will not only boost manufacturing in India but will also expand India’s services sector.
“This free trade agreement will strengthen confidence in India for every business and every investor in the world. India is working extensively on global partnerships in all sectors,” Modi said.
The final draft of the trade agreement must still pass legal scrutiny in Brussels and New Delhi and may only become operational next year, said Biswajit Dhar, a trade economist who has been involved with multiple Indian trade negotiations.
Anil Trigunayat, a former Indian diplomat who has dealt with regional trading blocs, described the trade deal as “excellent, providing professional market access while taking care of the bureaucratic labyrinth of the EU”.
“Unlike 20 years ago, today India has the capacity to work together with the Europeans and provides a good market for them,” Trigunayat said. “There will be much more to look into other than cheaper wines or BMWs, including trade investments.”
“It’s a very significant deal for both India and the EU,” Dhar told Al Jazeera, “and a major step towards consolidating India’s trade and economic relations with its largest trade partner.”
Crucially, Dhar said, this deal represents an opportunity for both sides to “diversify and look beyond the US and grow beyond their dependence on the American market”.
Is India opening its much-protected automobile industry?
India has been criticised in the past for its protectionist approach to the automobile sector, including by Tesla owner Elon Musk. It has been levying tariffs as high as 110 percent on foreign vehicles.
Negotiations to reach a trade deal between India and the EU broke down in 2013 over New Delhi’s reluctance to open its automobile sector.
Under the deal announced on Tuesday, however, New Delhi will open its domestic automobile market to EU imports, slashing tariffs on most cars from the EU to 30 to 35 percent, which are to be then phased down to 10 percent over several years.
It is understood that EU cars priced below 15,000 euros ($17,800) are excluded from the deal and will remain subject to higher tariffs. Cars costing more than this will be divided into three categories, each with quotas and separate tariffs.
Electric vehicles, however, will be excluded from import duty reductions for the first five years to protect investments by domestic Indian electric car manufacturers.
After that, imports from the EU will be restricted to 160,000 internal combustion engines and 90,000 electric vehicles per year.
Despite these safeguards, shares in Indian carmakers dipped by about 1.6 percent after the announcement of the trade deal.
How will the deal benefit the EU?
Indian tariffs on 30 percent of goods imported from the EU will fall to zero immediately.
Overall, tariffs on 96.6 percent of EU goods exports to India will be eliminated or reduced, EU officials said. The deal will save up to 4 billion euros ($4.74bn) a year in duties on European products.
Besides the relaxation of tariffs on car imports from the EU, existing Indian tariffs of up to 44 percent on machinery, 22 percent on chemicals and 11 percent on pharmaceuticals will, for the most part, be eliminated.
Tariffs on EU aircraft and spacecraft will also be eliminated for almost all products while those on optical, medical and surgical equipment will be eliminated for 90 percent of products.
Meanwhile, spirits and wines imported to India from the EU, currently tariffed at 150 percent, will be cut to 20 to 30 percent for wines, 40 percent for spirits and 50 percent for beer.
India will also provide improved access for EU firms in financial and maritime services, and both sides will simplify customs rules and provide stronger intellectual property protections.
How will the deal benefit India?
The EU will scrap all tariffs on 90 percent of Indian goods, and within seven years, that will be extended to 93 percent of Indian goods.
Among those benefitting from zero tariffs immediately are marine/seafood products, such as shrimp and frozen fish (currently levied at up to 26 percent); chemicals (12.8 percent); plastics and rubber (6.5 percent); leather and footwear (17 percent); textiles (12 percent); apparel (4 percent); base metals (10 percent); and gems and jewellery (4 percent).
There will be partial tariff cuts and quotas for about 6 percent of Indian goods, bringing the EU’s average tariff rate down from 3.8 percent to 0.1 percent.
Overall, 99.5 percent of bilateral trade will benefit from some form of tariff concession.
India is still seeking improvements in tariff-free steel export quotas, and the outcome of these talks is due by June 30 before EU rules take effect on July 1. Under the deal as it stands, India would be allowed to export 1.6 million tonnes of steel to the EU duty-free, but this is only about half what it exports annually at present.
The EU has not granted India an exemption from its carbon border adjustment mechanism (CBAM), which taxes “carbon-intensive” goods – those that require large amounts of energy to produce, such as steel, cement, fertiliser and electricity.
Only countries that are associated with the EU, such as Norway, Iceland, Liechtenstein and Switzerland are exempt from these due to their participation in the EU emissions trading system or related agreements. Countries whose emissions-trading systems are linked directly to the EU’s, such as Switzerland, are also exempt.
However, India will be able to negotiate this if the EU grants flexibility to another country.
How significant is India-EU trade now?
The US remains the biggest overall trading partner for both India and the EU.
However, over the past decade, goods trade between India and the EU has grown substantially, rising from about $74bn in 2020 to $136bn in 2024-2025, making the EU India’s largest goods trading partner.
India has a favourable trade surplus with the EU of more than $15bn as its exports of $75.85bn outpace imports of $60.68bn.
EU exports are heavy on machinery, transport equipment and chemicals while India mostly exports chemicals, base metals, mineral products and textiles.
The two sides hope to increase that to about $200bn by 2030.
From 2019 to 2024, India-EU trade in services also grew with Indian exports rising from $22.5bn to $44bn while EU exports increased from about $17bn to $34bn. The two mainly trade in business consulting and IT services.
India is the EU’s ninth largest trading partner, accounting for 2.4 percent of its total trade, compared with 17.3 percent for the US and 14.6 percent for China.
As of 2024, 931,607 Indians resided in the EU, according to the Indian government. Comparative figures for EU citizens living in India are not available.
The EU says about 6,000 European companies operate in India while about 1,500 Indian companies have a presence in the EU.
Do both economies have tensions with the US?
Yes, on several fronts.
Despite Modi having relatively good relations with the US president, India is one of the countries most heavily tariffed by the US – at 50 percent on goods – as a result of Trump’s trade war. Half of that is punishment for India’s continued purchase of Russian crude oil, which White House officials said is financing the Kremlin’s war on Ukraine.
EU tensions with the Trump administration have been building as well, particularly over Trump’s insistence that the US be allowed to buy Greenland, which is a territory of EU member Denmark.
This month, Trump threatened additional tariffs of 10 percent – rising to 25 percent in June – against eight European countries that had objected to Trump’s demand to buy Greenland. Both Greenland and Denmark have repeatedly stated that the island, which is politically part of Europe but is geographically located in North America, is not for sale.
However, during the World Economic Forum in Davos, Switzerland, last week, Trump walked back this threat and said he would not impose tariffs. Instead, he said, constructive talks had laid the basis for a framework of an agreement over Greenland.
The EU is still subject to up to 15 percent tariffs by the US under an EU-US trade deal signed last year.
Experts said the finalisation of the India-EU trade agreement has been expedited, in part, in response to this pressure from the Trump administration.
“The global trade disruptions have become a norm, and there is an urgent necessity for both [India and the EU] to provide a certain degree of certainty to their businesses,” Dhar said. “The US is mired in uncertainty, and one just doesn’t know what’s going to happen tomorrow.”
How will the US react to the India-EU trade deal?
The White House has already criticised the agreement.
US Treasury Secretary Scott Bessent lashed out at the EU over the pact with New Delhi. “We have put 25 percent tariffs on India for buying Russian oil. Guess what happened last week? The Europeans signed a trade deal with India,” Bessent told ABC News on Sunday.
“They [the Europeans] are financing the war against themselves,” he added.
While the EU signed a trade deal with the US fairly quickly after Trump announced his trade war last year, New Delhi is still trying to negotiate one with Washington. It is also seeking to diversify trade to other parts of the world.
“India has taken a policy of strategic patience [in dealing with Trump’s trade war],” Trigunayat said. “The deal with the EU is part of the same process to cushion the impact and find new partners.”
Harsh Pant, vice president of the New Delhi-based Observer Research Foundation think tank, told Al Jazeera: “You have two big economic players coming together, which is a signal to the US that they are willing to move forward with their own agenda.”
“There is a quite extraordinary geopolitical realignment between India and the EU,” Pant said. “The Trump effect has accelerated the process of this convergence, and we are going to see more strategic engagement between the two.”
