The US administration’s tariff offensive spurred the conclusion of a long-discussed pact to open markets.
On Tuesday, India and the EU will unveil what New Delhi has referred to as the most significant of their recent trade agreements. It is a historic agreement intended to reduce the previous dependency of both parties to this pact on both the U.S. and China.
The EU said that the deal was sealed during a visit to India by European Commission President Ursula von der Leyen, together with the European Council President, Antonio Costa. The EU spokesperson, referring to the deal, believed that this would open markets, remove barriers, and strengthen critical supply chains in clean technologies, pharmaceuticals, and semiconductors.
Punitive tariffs imposed by U.S. President Donald Trump on goods from India and the EU have spurred both parties to conclude negotiations that began about two decades ago.
The agreement is expected to slash tariffs on most EU exports to India. It comes as the rules-based international order is under unprecedented pressure, said the Commission vice-president Kaja Kallas last week.
A European official said ahead of the official announcement that they were aiming to substantially reduce tariffs on both sides. Another EU official believed that it would help to diversify supply chains and reduce unwanted dependencies.
This deal would still need to be approved by the European Parliament besides the Indian cabinet.
The Indian PM, Narendra Modi, is attempting to modernise the economy of a country notorious for its determination to defend its domestic market.
India is now rated as the world’s fastest-growing major economy. India imposes some of the highest tariffs in the world. This includes levies of more than 100% on important value-added EU exports, such as cars, spirits, and certain meat products.
Modi’s government had recently signed trade pacts with Australia, the UK, New Zealand, and the European Free Trade Association of non-EU members. However, India has been struggling to conclude negotiations with the U.S.
This month, Piyush Goyal, India’s trade minister, announced the completion of seven trade deals with developed countries, with the EU being the most significant.
The EU was compelled to lower its expectations for access to the vast Indian market. This deal has a few provisions regarding environmental and labour standards. According to a senior European official, the two sides are expected to continue talks in those areas.
Both Indian and EU officials said that dairy had been excluded from the agreement. However, European officials added that wine, spirits and oils were to be included.
India has been running a trade surplus with the EU for the past five years.
India and the EU are also due to unveil a defence package. Brussels hopes that this may tilt India away from its close ties with Russia.
This trade deal comes at a sensitive time for Brussels. EU lawmakers recently voted to postpone ratification of a trade agreement with the Mercosur group of South American economies, which have long been opposed to European farmers.
Ajay Srivastava, representing the New Delhi-based think tank Global Trade Research Initiative, said that the free trade agreement would be India’s largest in both economic size and regulatory scope.
The finalisation of the FTA coincides with a surge in protectionism, according to Srivastava. The agreement also addresses geopolitical fragmentation and the increasing use of trade as a strategic tool. He added that India would gain market access. Besides this, there is also tariff relief for labour-intensive exports and new opportunities for services.
At present, India exports more electronics to the EU.
The EU is rated as India’s largest trading partner in goods. The Indian government said that this bilateral trade is valued at about USD 136bn during the year until the end of March 2025. Indian services exports to the EU were worth USD 161.84bn in 2024. This reflects an increase of USD 44.03bn compared to 2019, five years earlier, when Indian software companies and outsourcers expanded in Europe.
