India and EU Sign “The Mother of All Deals”

Following roughly two decades of efforts, India and the European Union (EU) concluded negotiations for a free trade agreement (FTA) on January 27, with both parties describing it as “the mother of all deals”.

India and the EU together comprise around 2 billion people, nearly a quarter of global GDP and one third of global trade. Alongside the trade deal, both sides have announced a Security & Defense Partnership (SDP) and a mobility framework. The FTA still needs legal vetting and ratification on both sides before it can be implemented, which is widely expected to take anywhere between several months to a year.

India-EU bilateral trade represents a significant economic relationship, with merchandise trade valued at USD136.5bn in FY25, while trade in services crossed USD83bn in 2024. The EU accounts for around 17% of India’s merchandise exports, which as a bloc is second only to the US at close to 20%. In comparison, India is the tenth largest export market for the EU.

Contours of the deal

When the agreement comes into effect, India will gain preferential access to European markets covering 99.5% of its export value, with 90.7% of India's exports receiving immediate duty elimination. In return, the EU will also have preferential access to Indian markets covering 97.5% of EU exports to India, with 49.6% of tariff lines receiving duty elimination and 39.5% subject to phased elimination over 5-10 years.

India’s labor-intensive sectors, such as textiles, marine products, toys and jewelry, will receive immediate zero duty access to EU markets, while India will gradually reduce car tariffs for EU autos from 110% to as low as 10% (under an annual quota), and fully eliminate tariffs on European car parts after 5-10 years.

In agriculture, a sector with political sensitivity, the deal includes specific carve-outs. India has secured preferential EU market access for its key agricultural products including tea, coffee, spices, and various fruits and vegetables, while sensitive Indian sectors like dairy, cereals, poultry and soymeal remain protected. Meanwhile, EU agri-food exports will benefit from the elimination or reduction of high tariffs on olive oil and processed foods.

The agreement also expands services trade opportunities, with India expected to gain across 144 subsectors, such as IT, professional services and education, while offering access to the EU across 102 subsectors including professional, business, telecom, maritime, financial services. The European Commission calls it “the most ambitious commitments on financial services by India in any trade agreement.”

Boost to India’s trade and GDP growth

The deal is likely to accelerate reforms within India, as the signing of the FTA must be complemented with regulatory reforms and a focus on product quality. By agreeing to lower tariffs on non-agricultural products, we believe the deal also sends an important signal that India’s markets will open up to more foreign competition.

India's key export sectors are positioned for significant growth. The US consumer market size is large, often multiple times that of alternative destinations, but the EU offers an important alternative market for textiles, electronics, plastics, footwear, and iron and steel. Combined with India’s FTA with the United Kingdom and the European Free Trade Association, this offers a large potential market.

Nomura auto analysts expect the FTA to increase the export potential of Indian original equipment manufacturer (OEM) and suppliers. India should also benefit from higher services exports, investments and productivity spillovers. Overall, assuming the FTA is operational in 2027, we estimate it could add 0.1pp to India’s GDP growth in year one, relative to the baseline in FY25, with the growth boost potentially rising to 0.2-0.3pp by FY31.

Given the stage of India’s economic development, the phase-in periods, and insights from the EU-Vietnam deal, we expect India’s exports to the EU to rise at a faster pace than its imports from the EU.

Implications for the EU

Trade deals are like buses: you wait for a long time, then two come along at once. That is the case for the EU, with this deal with India – two decades in the making – coming soon after the Mercosur deal signed earlier in January.

The hope is the India deal will have an easier ride in the legal vetting process than the EU-Mercosur deal, which after sparking plenty of controversy related to agricultural competition and environmental concerns across the EU, has now been sent by the European Parliament to the EU Court of Justice to ensure that it complies with EU treaties.

Not only is the deal with India important from an economic perspective, it also potentially sends a message to the US that global economies are forging deals and strategic alliances with one another as the US becomes more insular.

The India-EU FTA comes just six months after India struck a deal with the UK in July 2025, which similarly removes or reduces tariffs on the majority of goods traded between the nations. The UK government estimates the deal will raise the level of UK GDP by 0.13%. A roughly equivalent impact on the EU from the EU-India deal would be worth around €20bn (in 2024 GDP levels).

For the full analysis, read the report here.