India–EU Free Trade Agreement (FTA)
India–EU Free Trade Agreement (FTA)
Context
In late January 2026, India and the European Union (EU) officially concluded negotiations for a landmark Free Trade Agreement (FTA) at the 16th India-EU Summit in New Delhi. Termed the "Mother of all Deals," this pact marks the culmination of nearly two decades of dialogue (2007–2026) and establishes a strategic economic partnership between the world’s second and fourth-largest economies.
About the News
Negotiation Milestone:
- Conclusion: Negotiations were finalized on January 27, 2026, during the visit of EU Commission President Ursula von der Leyen and Council President António Costa.
- Scope: The deal covers 24 chapters including goods, services, digital trade, and investment protection.
- Timeline: Legal scrubbing is expected to take 5–6 months, with formal signing and implementation targeted for late 2026 or early 2027.
Key Significance:
- Market Access: Creates a unified market of nearly 2 billion people, representing 25% of global GDP.
- Trade Volume: The EU is currently India's largest trading partner (approx. 11.5% of total trade), with bilateral merchandise trade crossing $136 billion in 2024-25.
- Strategic Shift: Reduces India’s reliance on traditional markets and strengthens supply chain resilience amid global trade disruptions.
Tariff Liberalization & Economic Impact
The agreement follows an asymmetrical model to balance developmental needs with market openness:
|
Feature |
Commitment by EU |
Commitment by India |
|
Tariff Elimination |
99.5% of trade value (97% of lines) |
97.5% of trade value (92% of lines) |
|
Immediate Access |
90.7% of Indian exports become duty-free instantly |
30.6% of EU exports become duty-free instantly |
|
Phased Reduction |
Remaining tariffs removed over 3–7 years |
Remaining tariffs removed over 5–10 years |
Sectoral Gainers:
- Indian Exports: Massive boost for labor-intensive sectors like textiles, apparel, leather, and gems & jewelry, which previously faced tariffs of 10–17%.
- European Imports: Significant price drops for machinery, chemicals, pharmaceuticals, and luxury automobiles (tariffs on cars slashed from 110% to 10% under specific quotas).
- Services: EU opened 144 subsectors (IT, education, R&D); India opened 102 subsectors.
The Challenge: CBAM (Carbon Tax)
The Carbon Border Adjustment Mechanism (CBAM) remained the most contentious point during the 2025-26 final rounds.
- The Mechanism: A tax on carbon-intensive imports (steel, aluminum, cement, etc.) entering the EU to prevent "carbon leakage."
- Final Agreement Outcome: * No Exemption: The EU confirmed that India will not receive an exemption from CBAM, as it must maintain parity with all global partners.
- Technical Dialogue: A dedicated "Technical Dialogue" platform was established to help Indian exporters align with EU carbon standards.
- Financial Support: The EU pledged €500 million over two years to support India’s green transition and greenhouse gas mitigation efforts.
Way Forward
- Legal Scrubbing: Both sides are now conducting a technical review of the text to ensure legal consistency across all official languages.
- Ratification: The deal requires approval from the Union Cabinet in India and the European Parliament/Member States in the EU.
- Implementation: Anticipated entry into force by early 2027, potentially doubling EU exports to India by 2032 and significantly integrating Indian MSMEs into European value chains.
Conclusion
The India–EU FTA is a watershed moment that moves beyond simple trade into a deep strategic partnership. While challenges like CBAM and regulatory alignment persist, the deal provides a predictable and stable environment for Indian businesses to become a global manufacturing hub.