India and EU on Verge of Landmark FTA, Opening Billion-Dollar Markets for Trade

The long-discussed Free Trade Agreement (FTA) between India and the European Union (EU) has reached the threshold of a final announcement. Citing relevant government sources, Reuters reported that a political announcement of the agreement may come on January 27, which, if implemented, would usher in a new chapter in the economic and strategic relationship between the two sides.

The historic announcement is expected to come during bilateral talks between Prime Minister Narendra Modi and European Council President Antonio Costa and European Commission President Ursula von der Leyen during their visit to India from January 25 to 28.

Sources say that under the agreement, India will significantly reduce its high import tariffs on European cars and alcoholic beverages. In return, Europe’s vast market will be opened further to Indian-made garments, jewellery, electronics, and chemical products.

Alongside the trade agreement, India and the EU are also moving toward signing a security and defence agreement. After South Korea and Japan, India would become the third Asian country to establish such a defence partnership with Europe. At the same time, there is also a possibility of signing a “Mobility Agreement” to facilitate the movement of highly skilled professionals and students.

Statistics show that in the 2024–25 fiscal year, bilateral trade between India and the EU amounted to USD 136.5 billion, making the EU one of India’s key trading partners. However, even after the final announcement of the agreement, approval from the European Parliament could take at least another year.

Against the backdrop of global trade tensions, the agreement is considered highly strategic for India. Especially after US President Donald Trump raised tariffs on Indian imports by up to 50 percent, India is actively seeking alternative markets.

Speaking at the World Economic Forum in Davos, Ursula von der Leyen said that although the agreement is in its final stage, negotiations are still ongoing on some sensitive issues. One of these is the reduction of India’s high tariffs on car imports, which, if lowered, would make European manufacturers such as Volkswagen and Renault more competitive in the Indian market.

However, New Delhi is concerned about the EU’s new carbon tax and the withdrawal of GSP benefits. According to India’s Ministry of Commerce, this could affect exports worth approximately USD 1.95 billion. Ajay Srivastava, founder of the Delhi-based think tank Global Trade Research Initiative, said that this FTA would play a major role in increasing India’s exports of garments and leather goods and help the country compete on equal footing with rival nations such as Bangladesh and Vietnam.