India and the EU have finally inked a long-awaited freetrade agreement (FTA), with Prime Minister Narendra Modi announcing the signing, which affects a market made up of roughly 2 bn people, as per an Information Ministry press release. Leaders on both sides conceded to having delivered “the mother of all [agreements]” as each braces for trade tensions with the US.

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Among the biggest FTAs signed by India, the agreement slashes Indian tariffs on 90% of EU exports, with 30% going to zero immediately, delivering around EUR 4 bn in annual duty savings. Tariffs on imported automobiles will dip to 10% from 110% over five years, under quotas. Industrial goods from the EU including machinery (currently at 44%) and chemicals (at 22%) will see duties hit zero immediately.

In exchange, the EU will scrap tariffs on 90% of Indian goods at launch, expanding to 93% of goods within seven years, with concessions covering textiles, gems, chemicals, and marine products. India retains protections for autos and agriculture. Indian exporters stand to gain as the EU’s average tariff rate dips to 0.1% from 3.8%.

No carbon tax exemption for the subcontinent

India failed to secure any concessions on a carbon tax exemption, but a new technical group will now assist Indian firms in verifying their carbon footprints as the EU’s strict green rules took effect in January this year. India secured a limited zero-duty steel quota of 1.6 mtpa to the EU, roughly half of its recent shipment levels. This is part of the blocs’ move to halve overall no-tariff steel imports from third countries — steel exporters that are neither EU member states nor countries with preferential access like India, China, and Turkey.

Why this matters

The pact is a strategic hedge against the US’ trade volatility and diversifies supply chains away from China and US as both regions seek more predictable partners. The FTA covers economic zones adding up to 25% of global GDP and one-third of the global trade, Modi said. With talks delayed for nearly two decades, the pact opens up India’s massive yet closely protected consumer market to freetrade with the 27-nation bloc.

Former IMF economist’s view on the pact: A mutual victory

Harmonizing, not weaponizing, trade: With this pact, India and the EU are moving away from the “weaponization of trade” increasingly seen in Washington, Charan Singh, CEO of Egrow Foundation and former senior economist at the IMF, told EnterpriseAM.

Anti-protectionist stance: Singh views the pact as a vital anti-protectionist strategy that provides necessary market diversification for both parties in a “gloomy world” of geopolitical uncertainty and eroding trust. Geopolitically, the agreement is the EU’s experiment with an alternate supply chain in a gradual pivot away from China, Singh said.

For India, the gains are concentrated in labor-intensive and high-tech industries. Beyond the immediate victories for textiles, pharma, and gems, Singh expects the pact to stabilize export growth by tightening technology and investment ties with Europe.

The EU’s looming carbon border tax could dampen gains by roughly 30%, according to Singh, with its complete implementation slated for 2026. However, he maintains a “mutual victory” outlook, underlining the spirit of the agreement to prompt a review of the carbon tax and all commodities covered under it. He urged a pragmatic approach given Europe’s own energy constraints.

Logistics hubs in the UAE and Saudi Arabia are positioned to gain as “switchyards” between Asia and Europe. As firms re-optimize supply chains and look for better alternatives to bypass risks in the Red Sea, some ports in India and MENA could benefit, stated Singh.

Addressing the deficit: India’s trade with the EU transformed from a near-zero balance in 2019-2020 to a USD 15.2 bn surplus in 2024-25. The phased tariff easing under the India-EU FTA is designed to avoid a sudden import surge, giving both sides time to adjust and reduce the risk of India’s trade surplus widening sharply, Singh told us.

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