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India and the European Union have finalised a long-awaited Free Trade Agreement after nearly two decades of negotiations
The deal provides wide-ranging tariff reductions and expanded market access across goods and services
Officials say the agreement will deepen economic and strategic ties amid global trade uncertainty
Climate compliance, including the EU’s carbon border tax, remains a key challenge for Indian exporters
The FTA now moves towards ratification in the EU and India before entering into force
After nearly two decades of negotiations, India and the European Union concluded and finalised the long-awaited Free Trade Agreement (FTA) on January 27, 2026. The agreement, which includes substantial tariff reductions across a wide range of goods and services, along with the establishment of a joint security partnership, marks a significant milestone in relations between two of the world’s largest economies
Finalised at the 16th India-EU Summit in New Delhi, the agreement brings together the world’s fourth- and second-largest economies in what officials on both sides have described as the most ambitious trade deal either has concluded. The FTA is expected to deepen economic and political ties at a time of heightened geopolitical tensions, rising protectionism and increasing fragmentation of global trade rules.
European Commission President Ursula von der Leyen said the deal created “a free trade zone of two billion people”, adding that it sent a signal that “rules-based cooperation still delivers great outcomes”. Prime Minister Narendra Modi has described the agreement as a foundation for inclusive, resilient and future-ready growth.
On the EU side, the negotiated texts will now undergo legal review and translation before being submitted for approval by the European Council and consent by the European Parliament. Ratification by India will follow before the agreement enters into force.
Together, India and the EU account for nearly 25 per cent of global GDP and close to one-third of global trade. Bilateral trade in goods and services currently stands at around €190 billion annually, including €120 billion in goods and more than €80 billion in services. The agreement is expected to expand this relationship substantially over the coming decade.
A central feature of the agreement is the scale of market access secured by both sides. India will grant preferential entry to more than 99 per cent of its exports to the EU by value, while the EU will eliminate or reduce tariffs on 96.6 per cent of its goods exports to India. According to official estimates, tariff liberalisation will save European exporters around €4 billion annually in duties, while enhancing India’s export competitiveness across a range of sectors.
Tariff reductions cover key industrial products. Indian duties of up to 44 per cent on machinery, 22 per cent on chemicals and 11 per cent on pharmaceuticals are set to be largely eliminated over phased timelines of five to ten years. Tariffs on car parts will be abolished over time, while duties on fully built vehicles will be reduced from 110 per cent to as low as 10 per cent under a quota-based system. Textiles, apparel, ceramics and several categories of machinery will see most tariffs removed when the agreement enters into force.
In agriculture, the deal reduces or removes high Indian tariffs — averaging over 36 per cent — on EU agri-food exports. Tariffs on wines will be cut from 150 per cent to 75 per cent initially and eventually to as low as 20 per cent, while duties on olive oil will fall from 45 per cent to zero over five years. Processed foods, fruit juices and non-alcoholic beer will also see significant reductions.
Sensitive sectors on both sides, including dairy, rice, sugar, beef and poultry, have been excluded from liberalisation, preserving domestic safeguards.
For India, the agreement is expected to unlock export growth of more than $75 billion, including nearly $33 billion from labour-intensive sectors such as textiles, apparel, leather, footwear, marine products, gems and jewellery, engineering goods and automobiles. Government officials say the deal will particularly benefit micro, small and medium enterprises, women entrepreneurs, artisans and young workers by integrating Indian firms more deeply into EU value chains.
Services — which form a dominant share of India’s economy — receive significant emphasis. India has secured access across 144 EU service subsectors, including IT and IT-enabled services, professional services, education, financial services, tourism and construction. The agreement also establishes a structured mobility framework covering skilled and semi-skilled professionals, business visitors, intra-corporate transferees and contractual service suppliers, alongside provisions for student mobility and post-study opportunities.
Union Commerce and Industry Minister Piyush Goyal described the FTA as going “far beyond a conventional trade deal,” calling it a defining achievement that would strengthen Make in India, boost exports and enhance global competitiveness.
The agreement comes against a backdrop of intensifying geoeconomic competition, where tariffs, carbon taxes and industrial policy have become strategic tools. For India, the deal offers diversification amid uncertainty in transatlantic trade and a hedge against renewed protectionist pressures, including the possibility of higher US tariffs. For the EU, it secures long-term access to one of the world’s fastest-growing large economies and reinforces its Indo-Pacific strategy.
The agreement is an attempt to embed trade and climate cooperation within a rules-based framework at a time when multilateralism is under strain, according to climate policy analysts.
“The deal signifies strategic alignment at a moment of high geopolitical uncertainty,” said Aarti Khosla, founder-director of Climate Trends. “It shows which way money and markets are going — towards green industry and clean technology.”
One of the most closely watched aspects of the agreement is its interaction with the EU’s Carbon Border Adjustment Mechanism (CBAM), the world’s first carbon tariff on imports.
CBAM, currently in a transitional phase, is expected to become fully operational in 2026 and could impose additional compliance costs of $2-4 billion annually on Indian exporters, particularly in carbon-intensive sectors such as steel, aluminium and cement.
India made CBAM a key issue during negotiations, and the agreement reflects partial safeguards. According to a statement by the Centre, CBAM-related provisions include a forward-looking most-favoured nation assurance, ensuring that any flexibilities extended to third countries will also apply to India.
The agreement also provides for enhanced technical cooperation on recognising carbon pricing mechanisms, mutual recognition of verifiers, and financial assistance and targeted support to help Indian exporters reduce emissions and comply with emerging carbon requirements.
“India rightly made CBAM a red line in its discussions with the EU,” said Avantika Goswami, programme manager for climate change at Delhi-based think tank Centre for Science and Environment (CSE). “Our 2024 study found it could lead to a 25 per cent additional tariff burden assuming a carbon price of €100 per tonne. While the EU has not offered all the concessions India sought, early statements on financial assistance and targeted support for decarbonisation are a promising sign.”
Beyond CBAM, the agreement reinforces broader climate and clean energy cooperation under frameworks such as the Clean Energy and Climate Partnership and the EU-India Trade and Technology Council, covering renewables, energy efficiency, grid modernisation and green hydrogen.
India has positioned itself as a potential green hydrogen supplier to Europe in the FTA, backed by plans to attract $10 billion in foreign investment for 10 gigawatts of electrolyser capacity by 2030.
The EU has also signalled financial backing for India’s green transition. The European Investment Bank has committed €2 billion to climate-resilient infrastructure through the Coalition for Disaster Resilient Infrastructure, while a proposed EU-India climate cooperation platform is expected to launch in 2026. Subject to EU budgetary procedures, €500 million in EU support over the next two years has been envisaged to help India cut emissions and accelerate sustainable industrial transformation.
Welcoming the agreement, the Federation of European Business in India said the FTA provides a long-term, rules-based framework to unlock the next phase of trade, investment and industrial collaboration. It noted that nearly 67 per cent of EU foreign direct investment into India has been recorded in the past decade, with more than 95 per cent of European companies planning to expand operations in India over the next five years.
According to FEBI’s Business Sentiment Survey 2026, 75 per cent of EU businesses expect higher investment and 78 per cent anticipate increased employment as a result of the agreement, with manufacturing and global capability centres emerging as key growth areas.
On the EU side, the negotiated texts will now undergo legal vetting and translation before being submitted for approval by the European Council and consent by the European Parliament. Ratification by India will follow before the agreement enters into force.