India and the European Union have agreed on a free trade agreement, capping nearly two decades of negotiations at a time of strained ties with the US.
“Europe and India are making history today. We have concluded the mother of all deals,” European Commission President Ursula von der Leyen wrote on X, formerly Twitter, on Tuesday. “We have created a free trade zone of two billion people, with both sides set to benefit. This is only the beginning. We will grow our strategic relationship to be even stronger.”
India's Prime Minister Narendra Modi hailed the India-EU FTA as a means to strengthen India’s manufacturing and services sectors while boosting investor confidence in Asia’s third-largest economy.
“India has completed its biggest and most historic free trade agreement,” Modi said at a joint press briefing in New Delhi. “This historic agreement will make it easier for our farmers and small businesses to reach the European markets.”
India-EU FTA: KEY HIGHLIGHTS
The India-EU trade deal will reduce or eliminate tariff on 96.6% of EU goods, saving up to €4 billion in import duty—so much so that the FTA is expected to double EU exports to India by 2032. Here's a look at the key announcements:
Benefits for EU exporters
- Indian tariffs on 30% of goods traded with EU to fall to zero immediately
- Tariffs will be eliminated or reduced on over 90% of EU exports
- EU firms to save up to 4 billion euros ($4.74 billion) a year in duties
- Improved access for EU firms in financial and maritime services
- Simplified customs rules and stronger intellectual property protection
As part of the India-EU FTA, import duty on cars will fall from 110% to 10% over five years, with the annual quota set at 2.5 lakh units. That's likely to benefit Volkswagen, BMW, Mercedes-Benz and Renault.
{{/usCountry}}As part of the India-EU FTA, import duty on cars will fall from 110% to 10% over five years, with the annual quota set at 2.5 lakh units. That's likely to benefit Volkswagen, BMW, Mercedes-Benz and Renault.
{{/usCountry}}India has also completely scrapped tariffs on most industrial imports from EU, including machinery and electrical equipment (currently at 44%), chemicals (up to 22%) and pharmaceuticals (11%).
Benefits for Indian exporters:
- At launch of deal, the EU will scrap all tariffs on 90% of Indian goods
- Zero tariffs to be extended to 93% of Indian goods within seven years
- Partial cuts and quotas for about 6% of Indian goods
- 99.5% of bilateral trade receives some form of tariff concession
- India to keep autos and agriculture out of full tariff elimination
- EU's average tariff rate falls from 3.8% to 0.1%
Tariffs cut to zero on key Indian exports to the EU, including marine products (currently at up to 26%), chemicals (12.8%), plastics/rubber (6.5%), leather and footwear (17%), textiles (12%), apparel (4%), base metals (10%), and gems and jewellery (4%), among a few others.
India-EU FTA: Steel & Carbon
India is seeking improved access to tariff-free EU steel import quotas as an FTA partner, with the outcome due by 30 June, ahead of EU rules taking effect on 1 July. According to an EU official quoted by Reuters, India will get 1.6 million tonnes of duty-free steel, although this is about half of what India has been exporting to the EU annually.
The bloc seeking to halve tariff-free steel imports overall.
- No India-specific exemption from the EU's carbon duties, though India says it can negotiate if EU grants flexibility to any other nation.
- A technical group will help Indian firms verify carbon footprints, along side a separate agreement to ensure EU technical and financial support to help emission cuts in India.
India-EU FTA on Agriculture
- Indian tariffs on EU agri-food exports that attracted average duties of over 36%, cut or removed.
- Sharp cuts on tariffs on EU wines, spirits, beer, olive oil, processed foods and some fruits.
- Indian duties on premium wine will gradually fall from 150% to 20%-30%, with the rate in year one at 75%. For spirits, the rate will drop from as much as 150% to 40% over seven years, and over 10 years for gin.
- Beef, rice, sugar, dairy and poultry excluded. EU food safety rules unchanged and safeguard clause to limit imports in case of market disruption.
India-EU FTA: What about services and trade?
- The EU gives India access to 144 services sub-sectors, India opens 102 sub-sectors to the EU, including financial, maritime and telecoms.
- Binding rules set on labour rights, environment, women’s empowerment and climate cooperation.
- Digital trade rules to support business while protecting privacy, security and public policy
India-EU FTA: What happens next?
To be sure, the India-EU FTA hasn't been signed yet, only draft documents have been drawn. These will now be published for a legal review, translation and approval by EU governments, the European Parliament and India.
The actual signing is expected possibly within a year.
India-EU FTA: What tax experts say
- Saurabh Agarwal, Tax Partner at EY India: The India–EU FTA will cover nearly 25% of global GDP and impact around 2 billion people, making it one of the most significant trade agreements globally.
At present, India’s goods exports to the EU stand at around $75.85 billion, and this figure is expected to increase significantly by 2032.
Overall trade between India and the EU is likely to expand steadily under the FTA, helping Indian exporters diversify markets, reduce dependence on the US, and better manage the impact of higher US tariffs.
- V.K. Vijayakumar, Chief Investment Strategist at Geojit: This India-EU FTA should not be viewed as a substitute for an India-US deal.
It is important to understand that India has a trade surplus of $45 billion with US but only $25 billion with EU. Therefore, even while celebrating this India-EU deal, we should tirelessly pursue the US-India deal, which India badly needs. Also this India-EU deal will become operational only in early 2027.