After nearly twenty years of on-and-off negotiations, India and the European Union appear ready to seal what Prime Minister Narendra Modi has already dubbed the “mother of all deals”. Details of the long-awaited India–EU Free Trade Agreement (FTA) are expected later today (27 January 2026), when PM Modi and European Commission President Ursula von der Leyen make a joint announcement in the capital.
At its core, the agreement is about hedging risks, say experts. With global trade becoming more fragmented and the United States turning unpredictable under President Donald Trump’s renewed tariff threats, both India and the EU are looking for reliable partners. Trade between India and the 27-nation bloc already stood at $136.5 billion in FY25, making the EU India’s largest trading partner. The FTA aims to push that number significantly higher by lowering tariffs, aligning standards and easing regulatory friction.
For India’s economy, the timing is critical, experts add. The collapse of an India–US trade deal last year and the imposition of steep tariffs on Indian goods have forced exporters to diversify markets. The EU, with its vast consumer base and relatively stable policy regime, offers exactly that alternative. Officials say the agreement will be legally vetted over the next five to six months, with implementation likely within a year.
Impact On Automotive Sector
Manufacturing stands to be one of the biggest beneficiaries. European companies have long complained about India’s high import duties, complex compliance norms and lack of predictability. An FTA promises a more stable framework, encouraging long-term investments rather than opportunistic market entries. The automotive sector is a case in point. Balbir Singh Dhillon, Brand Director, Audi India, says the agreement could support “innovation, supply-chain efficiency, and technology collaboration,” while creating a predictable environment for European automakers to invest and serve Indian customers. He is cautious, though, noting that pricing and product strategies will only be clear once final tariff schedules and timelines are known.
The industry’s domestic stakeholders, meanwhile, appear broadly reassured. Federation of Automobile Dealers Associations (FADA) President CS Vigneshwar described the pact as a milestone for the automotive sector, noting that the dealers’ body had actively contributed to its shaping. At the request of Commerce and Industry Minister Piyush Goyal, FADA undertook a focused study combining inputs from select European OEMs with data-led analysis, and submitted detailed recommendations to the government.
“The calibrated tariff glide path, TRQ safeguards and protection for India’s EV trajectory announced today closely reflect the balanced recommendations we had placed on record,” Vigneshwar said, adding that with over 95 per cent of European OEM sales already locally manufactured, the FTA strengthens Make in India, expands consumer choice and opens reciprocal export opportunities for Indian automakers.
Exports, particularly labour-intensive ones, could see a sharper upside. A recent CareEdge Ratings report highlights how the FTA could dramatically change India’s fortunes in the ready-made garments (RMG) sector. India currently exports about USD 4.5–5 billion worth of garments to the EU, accounting for roughly 5 per cent of the bloc’s imports. Competitors such as Bangladesh, Vietnam and Turkey enjoy duty-free access, while India has been hit by higher duties following the suspension of EU GSP benefits from January 2026. The FTA would level the playing field, potentially giving India a 12 per cent duty advantage over China and unlocking incremental annual exports of USD 4–4.5 billion over the medium term, while also driving investments and job creation across the textile value chain .
Imports into India will also rise, especially in high-value machinery, chemicals, automobiles and clean technologies. While this may worry some domestic players, economists argue that cheaper and better-quality inputs could make Indian manufacturing more competitive globally, aligning well with the government’s ‘Make in India’ ambitions.
The financial ecosystem is already gearing up for increased trade flows. Kaushal Sampat, President of Vayana, expects predictable trade rules to push up demand for trade credit and supply-chain financing. Reduced documentation risk and better visibility, he says, will encourage wider use of instruments like letters of credit, receivables financing and supply-chain discounting—especially in sectors such as machinery, chemicals and textiles.
Geopolitically, the deal signals India’s intent to play a larger role in shaping global trade rules rather than reacting to them. With the EU recently concluding agreements with Mercosur and others, and India signing pacts with the UK, New Zealand and Oman, the global race to secure reliable trade corridors is clearly on.
The question now is execution. Can both sides translate a headline-grabbing pact into real gains on factory floors, ports and balance sheets—or will the “mother of all deals” face the familiar challenges of implementation? |
