India-EU deal removes tariffs on 97% of traded goods

India and the European Union (EU) have successfully concluded negotiations on a landmark Free Trade Agreement (FTA), an accord that European Commission President Ursula von der Leyen hailed as 'the mother of all deals'.

Announced in New Delhi on 27 January, with Prime Minister Narendra Modi, European Commission President Ursula von der Leyen, and European Council President António Costa present to witness the signing, the agreement is projected to establish a massive market of nearly 2 billion consumers.

The deal's economic core involves removing tariffs on 97% of goods, which is expected to significantly bolster Indian manufacturing, particularly in sectors like textiles, gems, and leather, while simultaneously opening the Indian market to European machinery and cars.

The signing of a separate security and defence strategic partnership highlights a shared commitment by India and the EU to protect the rules-based international order.

Prime Minister Modi hailed the event as a milestone in bilateral relations and said, "Today is a day that will be remembered forever, marked indelibly in our shared history” noting that the deal will create jobs, foster shared prosperity, and strengthen global supply chains.

The timing of the agreement is viewed by analysts as a strategic counterweight to rising global protectionism, specifically the tariff-heavy approach of US President Donald Trump.

Following the US imposition of 25% to 50% tariffs on Indian imports and similar duties on EU steel and aluminum, New Delhi and Brussels have accelerated their cooperation. This FTA serves as a buffer against trade volatility, creating a stable economic corridor between Europe and Asia.

What changes for Indian consumers?
For Indian households, the deal promises a reduction in prices for premium European goods. The agreement outlines a slashing of import duties that have historically made European luxury items prohibitively expensive.

The new tariff reductions include significant cuts across several sectors. Duties on imported cars will see a drop from a high of 110% to as low as 10%. Tariffs on wines are set to progressively decrease from 150% to 20%, while duties on premium spirits will be slashed from 150% to a flat 40%.

Additionally, the current 50% tariffs on processed foods such as pasta, chocolate, and olive oil will be completely eliminated.

The deal is expected to be operational by early 2027 following regulatory approvals. Once active, it will offer immediate duty elimination for 70.4% of tariff lines, covering over 90% of India's current exports to the EU.

The Indian industry secured wins, including the immediate removal of tariffs (Zero Tariffs) on key sectors like textiles, leather, footwear, gems, jewelry, and marine products.

"The zero-duty access of Indian garments and clothing to the EU market will decisively turn the tables in India’s favour," said Chairman, A Sakthivel of the apparel industry, noting that this allows India to compete on quality and sustainability rather than just price.

Beyond trade: green energy and defense
Major European corporations have welcomed the move. Airbus President Wouter van Wersch called it a ‘fantastic day,’ reaffirming the aerospace giant's commitment to the ‘Make in India’ strategy for both civil aviation and defense products.

“Make in India is at the core of our strategy and we are very committed to continue to bring the best aircraft, the best helicopters and of course also in defence and space products to India, but to do this together. Bringing the technology and then leveraging, of course, the India scale and the strong human development capabilities that we have in the country," added Wersch.

The Federation of Indian Export Organisations (FIEO) has termed the conclusion of the FTA a national achievement, noting that it opens unprecedented market access for labor-intensive sectors and MSMEs. With the EU's average tariff rate falling from 3.8% to just 0.1%, Indian firms are expected to shift competition strategies from pricing to quality, design, and sustainability.

Beyond trade goods, the partnership includes a substantial environmental commitment, with the EU pledging €500 million over the next two years to support India's greenhouse gas reduction efforts to 20–25% annual growth. Overall, the agreement ensures broad market access, as 99.5% of bilateral trade will receive some form of tariff concession, though India successfully retained protections for its sensitive agriculture and dairy sectors.

Additionally, new agreements were signed to facilitate smoother financial regulations between the Reserve Bank of India (RBI) and European authorities, as well as digital protocols to ensure secure cross-border e-commerce.