The India–EU Free Trade Agreement, finalized on January 27, 2026, brings together two of the world’s largest democratic economies into a single preferential trading framework spanning nearly two billion people and accounting for roughly a quarter of global GDP. For India, it is the most expansive trade pact it has ever signed. For Europe, it is a strategic bet on the world’s fastest-growing major economy.

Standing alongside European Commission President Ursula von der Leyen and European Council President António Costa, Prime Minister Narendra Modi called the pact “a historic milestone” and “the largest free trade agreement in India’s history,” saying it would anchor India more deeply into global supply chains while protecting its core domestic interests.

Using his most oft repeated statement in domestic politics, Modi said, the double engine of India and the EU will usher in a prosperity for both India and the 27 nation bloc of the European Union. Modi often uses the word Double Engine Ke Sarkar - A double engined government.

“This agreement,” Mr. Modi said, “is not just about trade figures. It is about shared prosperity, shared values and shared confidence in the future.” The FTA should be viewed against the stalled Indo US trade tieup worth over $530 billion stuck due to President Trump's insistence on greater access for US farms goods into India such as soybean exports strongly resisted by India to protect its farmers.

China, faced with Trump's stubbornness on trade restriction, is diversifying its imports on soybeans from Argentina hitting farmers in the US particularly in the state of Wisconsin. At its heart, the agreement is a broad dismantling of tariff and regulatory barriers that have long constrained trade between India and the 27-nation European bloc.

Under the terms of the deal, India will reduce or eliminate tariffs on approximately 96.6 percent of European goods exports, a move expected to save EU exporters up to €4 billion annually in duties. In return, the European Union will grant near-zero-duty access to more than 99 percent of Indian exports by trade value, providing Indian manufacturers and exporters privileged access to one of the world’s richest consumer markets.

Among the most closely watched provisions are those affecting the automotive sector. India has agreed to phase down import duties on cars from levels exceeding 100 percent to roughly 10 percent over five years, a long-standing demand of European automakers. Tariffs on machinery, chemicals, aerospace components, wines and spirits will also fall sharply.

Beyond goods, the pact opens doors in services, investment and public procurement, areas where Europe has pressed for predictability and stronger legal protections. The agreement strengthens intellectual property rules, improves access in sectors such as financial services, telecommunications and maritime transport, and provides clearer dispute-settlement mechanisms for investors. Agriculture — politically sensitive in India — remains largely excluded, a compromise that helped break the logjam in talks that first began in 2007.

For Europe, the agreement comes at a moment of strategic recalibration. Trade tensions with the United States, rising dependence on China and sluggish domestic growth have pushed Brussels to seek new economic anchors.

“When India succeeds, the world succeeds,” Ms. Ursula von der Leyen said, describing the pact as the “mother of all trade deals.” Her message was clear: Europe sees India not just as a market, but as a long-term strategic partner capable of absorbing capital, technology and manufacturing capacity. Antonio Costa echoed that sentiment, framing the agreement as a declaration of resilience and shared democratic values in an era of global uncertainty.

For India, the calculus was equally strategic. The deal offers a path to expand exports in labour-intensive sectors like textiles, leather, gems and jewellery, while also supporting higher-value manufacturing in engineering, chemicals and pharmaceuticals. European investment, policymakers believe, can accelerate India’s ambition to become a global manufacturing hub.

Bilateral trade between India and the EU already exceeds €180 billion annually, making Europe India’s largest trading partner. Officials expect that figure to rise sharply over the next decade as tariffs fall and regulatory clarity improves. The breakthrough with Europe stands in sharp contrast to India’s long-running and largely inconclusive trade discussions with the United States.

Despite bilateral trade in goods and services approaching $200 billion a year, efforts to craft a comprehensive India–U.S. trade agreement — potentially valued at over $500 billion in the long term — have repeatedly stalled.

Washington has pressed India to open its vast agricultural market, ease restrictions in education and digital trade, and adopt stricter intellectual-property protections. New Delhi, in turn, has sought expanded access for pharmaceuticals, manufacturing exports, information-technology services and skilled professionals, along with more liberal visa regimes.

Those differences have proved politically intractable. Agriculture remains a red line for India, while U.S. policymakers have been reluctant to liberalize labour mobility or sensitive service sectors. The result has been a relationship marked by incremental deals and recurring disputes rather than a comprehensive framework.

By contrast, the European agreement demonstrates that India is willing to engage deeply on trade — but on terms that preserve domestic political stability and strategic autonomy. The deal is not yet operational. It must be ratified by the European Parliament and individual member states, as well as approved by India’s Union Cabinet. Officials on both sides expect implementation to begin by 2027, with tariff reductions phased in over several years.

There are also risks. Indian exporters will face stringent European standards on sustainability, labour and data protection. The EU’s carbon border measures could affect Indian steel, aluminium and cement exports. Compliance costs may test smaller firms.

Still, policymakers argue that the long-term gains outweigh the frictions. “This agreement forces Indian industry to compete globally,” said one senior Indian trade official. “That is uncomfortable — but necessary.”Taken together, the India–EU FTA signals a broader shift in global trade politics.

With Europe, India gains stability, technology and market access under a rules-based framework. With the United States, the relationship remains strategically close but economically incomplete — strong on geopolitics, weaker on trade integration. With China, trade remains large but imbalanced, shaped by competition, distrust and India’s growing efforts to reduce dependence on Chinese imports.

Rather than choosing one partner over another, India appears to be constructing a multi-vector trade strategy — deep integration with Europe, selective engagement with the United States, and cautious decoupling from China. In a world where globalization is being rewritten, the India–EU deal suggests that New Delhi intends to be not a passive participant, but a rule-shaper. (IPA Service)