After nearly two decades of on-and-off negotiations, India and the European Union have formally signed what leaders on both sides have described as the 'mother of all trade deals'.
With the ink now dry, attention has shifted from diplomacy to the shop floor, and to how the agreement will alter the economics of Indian industry, sector by sector.
The India-EU Free Trade Agreement (FTA) links Asia’s third-largest economy with a €18-22 trillion bloc of 27 countries and 450 million high-income consumers. More importantly for India Inc, it redraws tariff walls across automobiles, machinery, chemicals, pharmaceuticals, textiles, electronics and food processing.
According to The Economic Times, tariffs on 96.6 per cent of EU goods exports to India will be removed or reduced, delivering savings of up to €4 billion a year in duties on European products. In return, the EU has committed to improved market access for a wide range of Indian exports.
A Deal Sealed Amid Geopolitical Pressure
The signing comes against a backdrop of rising protectionism, tariff wars and geopolitical fragmentation. For both India and the EU, the agreement is as much about economics as it is about strategic alignment.
“The EU pact would be India’s ninth trade agreement in four years, underscoring India’s accelerated FTA strategy amid global protectionism,” said Ajay Srivastava, founder of the Global Trade Research Institute (GTRI).
India-EU goods trade crossed $136 billion in FY2025, with India exporting $75.9 billion and importing $60.7 billion. The withdrawal of EU GSP benefits in 2023 had eroded competitiveness for many Indian exporters. The signed FTA is now expected to restore tariff parity and open preferential access to all 27 EU markets under a single framework.
What Gets Cheaper In India First
The most immediate and visible impact for Indian consumers will come through cheaper European imports.
The agreement removes tariffs on EU exports such as fruit juices and processed foods, cuts or eliminates duties on olive oil, margarine and other vegetable oils, and lowers tariffs on spirits to 40 per cent. European beers, wines and premium food items are expected to become more affordable over the next few years.
Tariffs on 90 per cent of European optical, medical and surgical equipment will be removed, while duties on almost all EU aircraft and spacecraft exports to India will also be eliminated, the European Union has said.
Machinery, chemicals and pharmaceuticals, which earlier faced tariffs of up to 44 per cent, 22 per cent and 11 per cent respectively, will see sharp reductions.
For Indian industry, this means lower input costs in sectors ranging from healthcare and aviation to electronics and heavy engineering.
Automobiles: A Controlled Opening
Automobiles were the most contentious chapter of the negotiations and will remain the most politically sensitive sector.
India currently imposes import duties that can exceed 100 per cent on foreign-made cars, especially in the premium segment. Under the signed agreement, tariffs on EU-made vehicles are expected to be reduced to around 40 per cent, Reuters had earlier reported.
For European carmakers such as Volkswagen, BMW, Mercedes-Benz and Renault, this opens deeper access to one of the world’s fastest-growing automotive markets. Luxury electric vehicles are likely to be the biggest beneficiaries.
Industry executives note that India levies an import duty of about 100 per cent on European automobiles with a landed cost above $40,000, a threshold that applies to high-end EVs. Models such as BMW’s iX and i4, Mercedes-Benz’s EQS and EQE, Audi’s Q8 e-tron and Volvo’s XC40 Recharge already enjoy steady demand. Lower tariffs could make these models significantly more competitive.
At the same time, Indian negotiators have sought to protect domestic manufacturers. Budget electric vehicles, which are largely produced within India and dominated by domestic players, are expected to remain insulated from direct competition.
Auto parts are a parallel gainer. India exported $1.6 billion worth of auto components to the EU in FY2025. With duties of 6-20 per cent in some categories, tariff cuts could strengthen Indian suppliers embedded in European value chains.
Textiles And Apparel: Restoring Lost Competitiveness
Textiles and garments remain one of the clearest beneficiaries on the Indian side.
Indian garment exports to the EU stood at $4.5 billion in FY2025, but faced duties of around 10 per cent, a disadvantage against Bangladesh and Vietnam, which enjoy zero-duty access.
“The India-EU FTA represents a once-in-a-generation opportunity for India’s garment sector,” said A Sakthivel, Chairman of the Apparel Export Promotion Council. “The FTA is also crucial for employment-led growth and strengthening MSMEs.”
Textiles worth $1.6 billion and made-ups of $1.2 billion were also shipped to Europe. These are sectors Europe exited decades ago, making Indian exports complementary rather than competitive.
Pharmaceuticals, Chemicals And Electronics: Quiet Structural Winners
Pharmaceuticals and chemicals will benefit from tariff cuts that were long overdue.
Indian pharma exports to the EU stood at $3.0 billion in FY2025, while organic chemicals accounted for $5.1 billion. With duties being cut or eliminated, Indian companies gain easier access to one of the world’s most regulated drug markets.
Electronics, already India’s second-largest export segment to the EU at $11.3 billion, stands to gain from deeper integration with European supply chains. Smartphones alone accounted for $4.3 billion of exports.
Lower tariffs on machinery and industrial inputs will also reduce costs for Indian manufacturers and MSMEs that depend on European capital goods.
What India Imports And Why It Matters For Industry
India’s imports from the EU are concentrated in capital-intensive and technology-heavy sectors.
In FY2025, high-end machinery worth $13 billion was imported, including turbojets valued at $810 million and specialised industrial equipment worth hundreds of millions of dollars. Electronics imports stood at $9.4 billion, while aircraft imports totalled $6.3 billion.
Medical devices and scientific instruments were valued at $3.8 billion, and specialised medicines at $1.4 billion. Waste and scrap imports of $2.1 billion feed directly into India’s recycling industry and MSMEs.
For the Indian industry, lower tariffs here translate into lower project costs, improved productivity and stronger export competitiveness.
Non-Tariff Barriers And Carbon Risks Remain
Despite the signing, irritants persist.
The EU’s safeguard duties on steel, extended till 2026, continue to worry Indian exporters. Pankaj Chadha, Chairman of the Engineering Exports Promotion Council India, has warned that higher out-of-quota tariffs could blunt export gains.
India has also objected to carbon-linked levies affecting steel, aluminium and cement, which it sees as disguised trade barriers.
Why Economists See A Net Positive For India Inc
GTRI argues that the agreement lowers costs rather than displacing the domestic industry.
“India-EU merchandise trade is not a contest for market share, but a production partnership,” Srivastava said. European machinery raises productivity in Indian factories, while Indian scale manufacturing supplies affordable goods to Europe.
Indian exports largely substitute the EU’s imports from third countries, while EU exports feed directly into Indian MSMEs and manufacturing clusters.
Although the deal has been signed, it will take time to take effect. The text will undergo legal scrubbing, followed by ratification by the European Parliament and Council. Implementation is expected within about a year.
Industry View: A ‘Living Agreement’ With Long-Term Impact
Tax and trade experts believe the agreement marks a structural shift rather than a one-off tariff exercise.
Munjal Almoula, Managing Partner - Tax & Regulatory Advisory, BDO India, said the pact reflects a new generation of trade architecture. “After nearly two decades of negotiations, India and the EU finalised the landmark Free Trade Agreement on January 26, hailed by many as the 'mother of all deals.' Pioneering as a 'living agreement' with built-in digital trade, AI/semiconductor collaboration, and CBAM offsets (via India's CCTS linkage), it eliminates tariffs on 96 per cent+ of EU goods (machinery 44 per cent→0 per cent, autos 110 per cent→10 per cent) across 27 nations representing 25 per cent of global GDP,” Almoula said.
He added that the sectoral gains could be broad-based. “Textiles, gems & jewellery, leather, pharma, and high-tech engineering will surge, and is expected to double to $136B in bilateral trade by 2032, amid the ongoing US tariff disruptions, while easing professional mobility and data-secure status for India's services edge,” he said.
According to Almoula, the agreement goes beyond market access. “This multipolar pivot fuses EU precision manufacturing with India's scale, redefining resilient supply chains ahead of the 2027 rollout,” he said.
For India Inc, this framing matters. The FTA is not merely a tariff-cutting exercise but a long-horizon platform covering technology, climate rules, data flows and skills mobility, elements that will shape how Indian industry integrates into global value chains over the next decade.
