India-EU Big Deal A Blueprint for Shared Prosperity

History was made on a sunny wintry day in New Delhi when India and the 27-nation European Union announced the conclusion of a path breaking trade deal that will encompass a market of nearly two billion people and $25 trillion combined GDP, accounting for 25 per cent of global GDP. The deal ended nearly two decades of visions and revisions that marked tortuous negotiations and sparring over tariffs and non-tariff barriers.

The deal was unveiled after wide-ranging talks between India’s Prime Minister Narendra Modi European Union (EU) leaders Ursula von der Leyen and António Costa in New Delhi on January 27. A day earlier, India feted the two EU leaders as Chief Guests at the Republic Day celebrations, a historic first as this was only second time India hosted the leaders of a regional grouping at the National Day.

In both New Delhi and Brussels, there was jubilation and relief at crossing the finishing line. Prime Minister Narendra Modi hailed the historic trade deal as “a new blueprint for shared prosperity.”

India has concluded the largest Free Trade Agreement in its history. It is a happy coincidence that on the 27th day of the month, India is entering into this FTA with the 27 Member States of the European Union,” said PM Modi

A Tale of Two Giants

EU President Von der Leyen sounded ecstatic.

We did it. We have delivered the mother of all deals. We are creating a market of 2 billion people, she said. “This is a tale of two giants – the world’s second- and fourth-largest economies. Two giants who choose partnership, in a true win-win fashion. A strong message that cooperation is the best answer to global challenges, she said

the last sentence signalling that India and EU can proactively address global challenges at a time when multilateralism is under assault from Trump’s tariffs and tantrums.

Placing the importance of the India-EU deal in the larger global context, India’s Commerce and Industry Minister Piyush Goyal underlined that “it goes far beyond the humongous potential that is being unlocked with the Free Trade Agreement.” “It is truly a statement of deep partnership and the strategic intent of the European Union and India coming together in a multitude of areas to strengthen our partnership, to work together for the shared prosperity and a better future for one-third of humanity.”

Win-Win Deal

“The mother of all deals,” as branded by EU chief Ursula der Leyen, is a win-win deal, promising concrete gains for both sides.

India gets highly favourable access to a well-heeled quality conscious EU market of around 450 million people, with concrete gains for its labour-intensive and export-oriented sectors. The deal provides Indian goods preferential market access for over 97% of tariff lines (covering 99.5%+ of export value), with immediate duty elimination on 70.4% of lines (90.7% of export value). Major labour-intensive sectors such as textiles, apparel, leather, footwear, tea, coffee, spices, sports goods, toys, gems and jewellery, and certain marine products get immediate zero-duty access.

On the other hand, the EU gains preferential access to a burgeoning market of over 800 million people in one of the world’s fastest-growing economies. The deal is expected to double EU exports to India by 2032, boosting EU companies and farmers through easier, cheaper, and faster trade.

Beyond trade: Geopolitical calculations

While the FTA will translate into major economic gains for both sides, the real strategic significance of the India-EU summit lies in the message it sends to the world’s first and second largest economies. The FTA will enhance strategic autonomy of both India and the EU to counter Trump’s aggressive trade unilateralism and China’s weaponisation of supply chains. The deal was accompanied by the signing of the EU-India Security and Defence Partnership and the adoption of an India-EU Joint Comprehensive Strategic Agenda, which will deepen relations across the spectrum, including technology and innovation, security and defence, connectivity, and people-to-people ties for the next five years.

Message to US

The India-EU summit and FTA sent a potent message to US President Donald Trump that confronted with bullying and economic coercion, India and the EU can chart their independent path regardless of US’ hectoring. Washington got the message – US Treasury Secretary Scott Bessent criticised the EU for the deal, observing that the US imposed 25% tariffs on India for Russian oil purchases while Europe proceeded with trade benefits. Under the deal, India has won hard-earned concessions by keeping agriculture and dairy products out of the purview of FTA for the time being. This enhances India’s room for manoeuvre vis-à-vis the US which has adopted a hardline position pressuring India to open its agriculture sector in the India-US trade deal, which is under negotiation. By securing preferential access to the EU’s vast market (covering 99.5% of Indian exports with tariff reductions over seven years), India has reduced its economic vulnerability to US tariffs and whimsical demands.  This diversification allows India to negotiate from a position of strength, signalling to the US that it is not overly dependent on American markets. The India-EU deal limits the US leverage in talks and may nudge Washington to offer better terms to avoid being sidelined.

The trade deal helps India cushion the impact of high US duties on apparel, gems, and other labour-intensive goods, by opening EU markets for these exports. This will help India counter Trump’s tariff threats and push for concessions in key sectors. According to analysts, the India-EU deal, which is expected to come into force by the end of 2026, will help revive and fast-track negotiations for a balanced India-US trade deal.

Rules-based Order

Apart from the trade deal, India and EU leaders also batted for a rules-based international order which is being assaulted by Trump’s subversive actions like his plan to purchase Greenland, uniting Europe in opposition like never before. In a pointed message to the US, EU Commission President Ursula von der Leyen spoke about trust and predictability as defining features of the new elevated phase of India-EU partnership. The sub-text was that the US is neither trustworthy nor predictable. The joint document titled, “Towards 2030: A Joint India-European Union Comprehensive Strategic Agenda,” positions India and EU as keepers of the rules-based international order and guardians of effective multilateralism.

The strategic agenda enjoins India and the EU to enhance coordination, close cooperation and joint action in multilateral fora, including in the United Nations (UN) and the G20 and jointly work on reform of multilateral institutions, including the UN. The strategic agenda also envisages closer cooperation between India and the EU to reform and strengthen the World Trade Organisation (WTO) and enhance cooperation to effectively implement the Paris Agreement. Significantly, the FTA was done days after Trump ordered the US’ withdrawal from more than 60 international organisations. The India-EU enhanced partnership in multilateral groupings is, therefore, a fitting rebuff to Trump’s disdain for multilateralism, especially WTO and the Paris Agreement.

Message to China

The FTA, combined with the EU-India Security and Defence Partnership, will also bolster India-EU coordination to counter Chinese assertiveness and help them diversify supply chains. Both India and EU are heavily dependent on critical Chinese supply chains, making them vulnerable to disruptions. The trade deal helps both sides to de-risk from China. For the EU, the deal provides alternative manufacturing and supply-chain options beyond China in critical sectors like clean technologies, rare earths, electronics, and industrial components where Europe has been vulnerable to Chinese dominance or coercion.

For India, the deal provides privileged access to the EU’s large market for textiles, pharmaceuticals, engineering goods, and services, while facilitating technology transfers and investment that can reduce reliance on Chinese imports in electronics (nearly 40% of India’s supply) and other inputs. This supports India’s “Atmanirbhar” (self-reliant) goals and improves export competitiveness.

The India-EU Security and Defence Partnership, that includes joint work on maritime security, cyber and hybrid threats, counterterrorism and defence industry cooperation, will also expand maritime cooperation in the Indo-Pacific. The defence pact, the EU’s third in Asia after Japan and South Korea, helps counter China’s influence in the Indo-Pacific as India and the EU undertake joint activities to help maintain a rules-based order in the region where China is challenging norms and expanding its territorial claims in contested areas such as South China Sea.

The pact will enhance and elevate India-EU defence industrial cooperation which will bolster India’s defence manufacturing base, thereby strengthening its deterrence against any potential aggression by China or Pakistan.

Another key outcome was the signing of a mobility pact aimed at easing the movement of Indian professionals, students and researchers across the EU, alongside the pilot European Legal Gateway Office. Over 800,000 Indians currently work and live in EU member states.

Our greatest wealth is our people,” said EU Commission’s chief. “This is good for our economies. This is good for the friendship between our people. This openness benefits us all,  she said.

The Road Ahead

Looking ahead, the two sides are expected to focus their attention on fast-tracking implementation of the deal by completing procedural requirements, including the legal scrubbing of the text and ratification of the agreement by the EU parliament. Given huge stakes in the success of the deal, the two sides need to resolve issues relating to the EU’s Carbon Border Adjustment Mechanism (CBAM), which will impact India’s exports of steel and cement.

With the landmark trade deal and pacts on defence and labour mobility, India-EU relations are set to scale new frontiers and emerge as the nucleus of stability and openness in a fractured world, marked by conflicts, crises and fragmentation. The deal has opened a new chapter in relations between the two vibrant democracies and leading economies, with all-too-real gains for two billion people living in the two regions. The deal will not only reshape global supply chains and reduce tariffs but also positions the India-EU partnership as a potential “Third Pole” in this Trumpian global disorder.