India and the European Union (EU) are on the verge of finalizing a historic deal. Von der Leyen and Goyal have at times referred to it as the “mother of all deals.” This ambitious FTA has been negotiating for almost two decades. Both countries have been trying to shore up their already-strong economic relationship as the world changes around them.
If this prospective deal goes through, it will be a landmark moment for India. It will be the country’s ninth free trade agreement in a mere four years. Further, the FTA seeks to lower India’s longstanding protectionist tendencies, creating a freer, fairer, and mutually beneficial trade and investment environment. India’s economy will soon become the world’s fourth largest in GDP, on track to pass Japan this year. Deepening relations with the EU is seen as inescapably the best way forward for both countries.
The EU sees India as a rising economic competitor, further incentivizing closer trade relations. Worries over India’s heavy carbon footprint and burgeoning human rights abuses have led to backlash against the agreement in Europe. The negotiations face major hurdles, thanks to a burgeoning new carbon tax known as the Carbon Border Adjustment Mechanism (CBAM). Several Indian exports have been warned by various experts that this may place an additional hurdle on Indian exports.
Ajay Srivastava, an industry analyst, noted that while the FTA may eliminate import duties, “it effectively acts as a new border charge on Indian exports.” This apprehension mirrors those more general fears about how the agreement will impact relations between trading partners during an age of heightened geopolitical tensions.
While this most recent agreement makes strides onto tariff reductions, India’s GSP would be restored under the agreement. This will increase market access opportunities for Indian products going into the EU. The expected agreement would progressively reduce tariffs on many products, including automobiles, wine and spirits. All the while, it would safeguard politically important constituencies such as agriculture and dairy.
Despite the mutual eagerness on the part of India and the EU to develop their partnership further, negotiations have been difficult. The EU’s demand for robust intellectual property protections and India’s commitment to reducing its purchase of Russian crude oil by November 2025 are significant factors in determining the agreement’s success.
“Both sides now seek reliable trade partners, as threats arising out of the geopolitics have created a tumultuous environment for commerce,” said Sumedha Dasgupta.
Similar to India’s approach to trade negotiations at large, their approach is strategic and phased. Initially, it addresses the easier-to-digest, less sensitive matters, leaving the heavyweight controversial stuff for the later conversations. Chietigj Bajpaee highlighted this tendency: “India’s proclivity has been to adopt a phased approach towards negotiating trade deals by moving more politically-sensitive issues into subsequent rounds of negotiation.”
As India navigates its foreign policy landscape amidst uncertainties stemming from U.S. tariffs and China’s perceived unreliability, the FTA presents an opportunity for greater economic independence. Alex Capri emphasized this point, stating, “Ultimately it could expedite trade decoupling from the US and other unreliable partners. It will mean reducing dependencies on Trump’s America – or China for that matter.”
The indicative trend of bilateral trade between India and the EU shows a positive trend for India. In 2022, India exported some $76 billion of goods to the EU. Meanwhile, at the same time, India imported $61bn, leaving an enormous trade surplus. The loss of EU GSP benefits in 2023 severely restricted competitiveness for numerous Indian products coming into the EU market.
“An FTA would restore lost market access, lower tariffs on key exports such as garments, pharmaceuticals, steel, petroleum products and machinery and help Indian firms better absorb shocks from higher US tariffs,” stated Ajay Srivastava.
The value, or otherwise, of the proposed free trade agreement will only be known once the last few issues are worked through. Stakeholders on both sides express optimism that the deal can become a “growth-enabling partnership” rather than a “strategically asymmetric deal.”