India-EU sign FTA, ‘mother of deals’

Indian Prime Minister Narendra Modi said of the India-European Union (EU) free trade agreement, “People around the world are calling this the mother of all deals.” It was signed on Tuesday between Modi, EU Council President Antonio Costa and EU Commission President Ursula von der Leyen.

There will be a drastic slashing of tariffs on both sides by 2032, with EU reducing tariffs on Indian imports by 99.5 per cent of goods, and India 96.6 per cent on goods. EU is expected to save 4 billion euros from the cut in tariffs.

The India-EU FTA will create a bigger free market zone greater than the EU-Mercosur (four South American states of Argentina, Brazil, Paraguay and Uruguay). The EU-Mercosur deal covers a population of 8 billion people, while the India-EU deal will cover a population of nearly 1.9 billion, double that of EU-Mercosur. The new free market zones that are emerging exclude the United States as American President Donald Trump unleashes punitive trumps against its trading partners across the globe.

The India-EU deal will take five to six months to come into effect as it goes through legal vetting on both sides. Meanwhile, the EU-Mercosur FTA has hit a hurdle with some EU legislators deciding to challenge provisions of the deal in the top court of EU, the Court of Justice for the European Union

As a result of the deal, European cars will have an easy access to the Indian market with tariffs going down to 10 per cent over a period of 10 years from the reigning 110 per cent. The reduced tariffs would be available for 250,000 cars which cost over 15,000 euros, and will then go down to 30 to 35 per cent.

European wines will benefit immensely with tariffs dropping from a high of 150 per cent to 75 per cent once the deal is implemented, and they will go down to 20 per cent over a period of time. There is however no relief for India from the EU’s Carbon Border Adjustment Mechanism (CBAM), which deals with products and the carbon emissions involved in their production.

The EU has agreed to consider relaxation if any other third country gets a concession. The EU has however promised 500 million euros in the next two years to cut greenhouse gas emissions.

In 2024-25, India’s trade in goods was USD 136 billion, with around USD 60 billion in exports, and around USD 70 billion in imports. The economies of India and EU account for 25 per cent of global GDP and 30 per cent of the global trade.

While the trade benefits look impressive, the real message of the deal goes beyond trade. Modi spelled out the meaning of the deal. He said, “Today, there is major turmoil in the global order. In such a situation, the partnership between India and the European Union will strengthen stability in the international system. In this context, today we held detailed discussions on several global issues, including Ukraine, West Asia, and the Indo-Pacific.

“Respect for multilateralism and international norms is our shared priority. We also agree that to address today’s challenges, global institutions need reform.”

It is this broader political and economic context that underlies the importance of the India-EU FTA. It does send out a message to the US that it cannot act unilaterally in matters of trade and tariffs. This deal is sure to impact the ongoing India-US trade talks. There is the expectation that the Trump administration would try to undo some of the damage it has inflicted on the trade ties between the two countries in the last one year.