India–EU mega deal could reshape global trade ties
When European Commission President Ursula von der Leyen called the newly announced India–EU free trade agreement the “mother of all deals,” it was not just rhetorical flourish. After nearly two decades of on-and-off negotiations, the agreement marks a decisive moment for two of the world’s largest economic blocs—and for global trade at a time when cooperation is increasingly rare.
The deal brings together economies representing roughly a quarter of global GDP and a combined population of around two billion people. Speaking in New Delhi, von der Leyen framed it as a “tale of two giants” choosing partnership over protectionism. That framing matters. In an era shaped by trade wars, supply-chain shocks, and geopolitical rivalry, India and the European Union are signalling that large, diverse economies can still strike ambitious, rules-based trade agreements.
At its core, the deal is about market access—on a scale rarely seen in India’s trade policy. Under the agreement, tariffs on 96.6% of EU goods exported to India will be eliminated or significantly reduced. For European exporters, this translates into estimated annual savings of around €4 billion in customs duties. But beyond the headline number, the composition of these cuts tells a deeper story.
The biggest winners on the European side are carmakers. Tariffs on European vehicles, which currently stand at a punishing 110%, will be gradually reduced to as low as 10% under a quota of 250,000 vehicles per year. That quota is six times larger than what Britain secured in its post-Brexit trade deal with India, underlining the scale of this agreement. Brands like Volkswagen, BMW, Mercedes-Benz and Renault will find the Indian market far more accessible than ever before.
India, however, has drawn careful red lines. European cars priced below €15,000 will continue to face higher tariffs to shield domestic manufacturers, and electric vehicles will enjoy a five-year grace period before tariff cuts kick in. These carve-outs reflect India’s broader strategy: open the door, but not so wide that domestic industry is overwhelmed.
Beyond automobiles, India has agreed to near-total tariff elimination on machinery, chemicals and pharmaceuticals—sectors critical to industrial growth and healthcare. Tariffs that once reached 44% on machinery, 22% on chemicals and 11% on pharmaceuticals will largely disappear. For Indian businesses, this means cheaper inputs, better technology access and potentially more competitive manufacturing.
Wine and spirits stand out as symbolic wins for Europe. Tariffs on wine will plunge from an eye-watering 150% to between 20% and 30% for medium and premium varieties, while spirits tariffs will fall to 40%. These cuts may not transform Indian consumption overnight, but they signal a cultural shift in India’s traditionally cautious approach to alcohol imports.
The EU, meanwhile, is opening its own market almost entirely to Indian goods. Tariffs on 99.5% of Indian exports will be reduced or eliminated, offering a major boost to labour-intensive sectors where India has a clear edge. Marine products like shrimp, leather goods, textiles, handicrafts, gems and jewellery, plastics and toys will enter the EU with far fewer barriers.
This access is especially valuable at a time when Indian exporters face tougher conditions elsewhere, including tariff pressures in the United States. For millions of Indian workers employed in these sectors, easier entry into the European market could translate into steadier demand and better incomes.
Yet for all its ambition, the deal is also defined by what it leaves out. Unlike many recent EU trade agreements, this one avoids deep policy harmonisation on labour rights, environmental standards and climate commitments. While there are references to the EU’s carbon border adjustment mechanism, they stop short of binding, enforceable environmental rules.
This omission reflects political realities on both sides. India has long resisted what it sees as “non-trade” issues being embedded in trade agreements, arguing they can act as disguised protectionism. Europe, meanwhile, has chosen pragmatism over purity, prioritising strategic partnership with India even if it means softer language on values and standards.
The EU has also protected its own sensitive sectors. Tariffs on beef, chicken, dairy, rice and sugar remain in place, shielding European farmers from Indian competition. The result is a carefully balanced outcome: Indian consumers may enjoy cheaper European cars and wines, while European agriculture stays largely insulated.
Globally, the significance of this deal goes beyond tariffs and quotas. It sends a message that large economies can still choose cooperation over fragmentation. At a time when global trade rules are under strain, the India–EU agreement stands as a counter-narrative—one where compromise, patience and long-term vision prevail.
For India, the deal reinforces its emergence as a central player in global supply chains. For Europe, it diversifies economic partnerships away from overdependence on any single region. And for global trade, it offers a rare note of optimism: that even in a divided world, two giants can still find common ground—and make it work.