India’s Prime Minister, Narendra Modi, recently concluded a four-country tour of Europe, with visits to the Netherlands, Sweden, Norway and Italy. The tour was aimed partly at consolidating political and security ties with key European partners at a time of growing geopolitical uncertainty. But its wider significance lies in India’s ongoing effort to diversify its external economic engagement and reduce overdependence on a narrow set of markets and supply chains.
In recent years, this strategy has gathered pace through a series of trade negotiations and agreements, including FTAs and CEPAs with partners such as the UK, Oman and New Zealand. Europe now occupies a central place in this broader economic recalibration, not only as a major market for Indian goods and services, but also as a source of technology, investment, capital and resilient supply-chain partnerships.
Seen in this light, Modi’s European tour was less a standalone diplomatic exercise than a signal of the direction in which India’s external economic strategy is moving. The agreements signed in the Netherlands, including the reported collaboration between Tata Technologies and ASML to support advanced manufacturing in India, point to New Delhi’s interest in moving beyond conventional goods trade towards technology-intensive, high-value partnerships. Sweden, meanwhile, provided an opportunity to reinforce political support for the India–EU free trade agreement (FTA), including through a new partnership on trade and investment, and to maintain momentum behind the conclusion of the deal. Together, these developments show how India is seeking to convert strategic convergence with Europe into a more ambitious economic partnership – a context that makes the recently concluded India–EU trade agreement especially significant.
In late January this year, India and the European Union finalised negotiations for the FTA, billed as the ‘Mother of All Deals’. While that may be an exaggeration, the phrase nevertheless captures the agreement’s scale and political ambition, marking a major step forward in an emerging but increasingly significant trade partnership. The agreement seeks to reshape EU–India trade through more predictable regulatory procedures, improved market access provisions, and deeper supply chain linkages. While lower tariffs reduce transaction costs, additional provisions can ease compliance burdens and create new commercial opportunities. The recent visit saw this in action: in the Netherlands, India signed 17 agreements and reached a breakthrough deal between Tata Technologies and ASML to build a factory in India, contributing to high-value trade. In Sweden, Modi pushed the EU ratification of the FTA.
The timing of the agreement is also significant. It comes at a critical juncture for both countries, amid rising uncertainty over traditional trade alliances, growing interest in diversifying supply chains and shifting global trade priorities. While the FTA reflects a strategic push towards deeper global integration for both regions, it also sits within a wider EU–India economic partnership, including frameworks such as the EU–India Trade and Technology Council (TTC) and the EU–India InnoCenter, which support cooperation in areas such as strategic technologies, innovation, resilient supply chains and startup collaboration. In this sense, the agreement can be interpreted not simply as traditional tariff-led liberalisation but as a more flexible form of trade cooperation aimed at supporting diversification and strengthening economic resilience against the backdrop of ongoing geopolitical and economic uncertainty.
Viewed in this context, the FTA offers significant scope to broaden the EU–India economic partnership. For the EU, the agreement could improve access to a large but still highly protected Indian market. For India, it provides an opportunity to enhance competitiveness in the EU market, diversify exports and strengthen integration into global value chains. However, the success of the FTA will depend on how well it complements the existing comparative advantages of both regions and on whether they can capitalise on emerging trade opportunities. This essay examines the existing and emerging trade relations between the EU and India and assesses the potential benefits of the agreement for both regions in an increasingly unpredictable global economy.
A Window of Opportunity
In 2024, the EU was India’s second-largest trading partner after China, accounting for 11 per cent of India’s total global trade. Meanwhile, India was the EU’s tenth-largest trading partner, accounting for 1.7 per cent of the EU’s global trade. This reflects an asymmetry in the weight each partner carries in the other’s overall trade profile: the EU is a major market for India, while India remains a relatively smaller, though increasingly relevant, partner for the EU.
This asymmetry is also evident in how the trade relationship has evolved over time. Figure 1 shows the share of EU imports from India as a share of the EU’s total imports from abroad, and the share of Indian imports from the EU as a share of India’s total imports from abroad, between 2014 and 2024. While India’s importance as a market for the EU has decreased over time, the EU market has become more important for India. In particular, since 2020, there has been a sharp increase in the share of India’s exports to the EU. Between 2020 and 2021, this trade expansion can be explained by increased Indian pharmaceutical exports in response to the COVID-19 pandemic. However, the persistent upward trend post-2021, including an even sharper increase in 2023, could signal greater trade openness in India and increasing diversification in the EU.
Meanwhile, the share of India’s imports from the EU has declined over the same period, suggesting a gradual shift in India’s relative sourcing patterns. This does not necessarily imply a reduction in absolute imports from the EU, but rather that India’s imports from other regions may have grown more rapidly. In particular, India’s import basket appears increasingly oriented towards Asian and Indo-Pacific suppliers, including Northeast Asia, ASEAN, and West Asia/Gulf Cooperation Council (GCC), reflecting the role of regional production networks and cost-competitive manufacturing ecosystems. The observed decline in the EU’s import share is therefore better interpreted as a relative diversification of India’s import base and deeper integration into global and regional value chains, rather than as evidence of disengagement from European suppliers.
Figure 1: EU and India – share of imports (2014-2024, per cent)
These trends point to a clear imbalance and a window of opportunity. India’s share of EU imports has grown, yet it still accounts for only a small share of the EU’s overall import basket. Similarly, while the EU remains a major trade partner for India, its relative position in India’s import market has weakened. The EU-India FTA could, therefore, help address both sides of this gap: by supporting stronger Indian export growth to the EU and by improving market access for EU firms in India.
For instance, under the EU-India FTA memo, India has committed to eliminating tariffs on 86 per cent of tariff lines, covering 93 per cent of the trade value, creating immense opportunities for increased EU exports to India. The economic value of exporting more to India doesn’t stop there. With a market of close to 1.5 billion people and an expanding middle class, India offers the EU an important source of export diversification and long-term demand growth.
For India, the agreement offers an equally important opportunity. In 2024, India was the eighth-largest supplier to the EU, accounting for only 3 per cent of the EU’s imports from abroad. As a large economy, abundant in labour and capital, India’s current share represents underutilised export potential. Under the EU-India FTA, the EU has committed to eliminating tariffs on over 90 per cent of tariff lines, covering 91 per cent of the trade value, creating a window for India to drive export growth and increase its share of EU imports. This would give Indian exporters improved access to one of the world’s largest markets and could help India increase its share of EU imports over time.
Taking a Closer Look
The changing structure of EU-India trade suggests that the relationship is no longer concentrated mainly on traditional or lower-value goods. Over the past decade, trade between the two partners has increasingly shifted towards higher-value-added sectors.
Between 2014 and 2024, the EU’s imports from India of food and live animals decreased from 7 per cent to 4 per cent. Meanwhile, the share of machinery and transport equipment increased from 15 per cent to 25 per cent, and that of chemicals from 16 per cent to 23 per cent. On the other hand, between 2014 and 2024, India’s imports from the EU of manufactured goods decreased from 34 per cent to 13 per cent, while imports of machinery and transport equipment increased from 32 per cent to 48 per cent. In 2024, for both India and the EU, the largest imports from each other were in the machinery and transport equipment, chemicals, and manufactured goods sectors.
Figure 2 shows that these three sectors accounted for 79 per cent of India’s total imports from the EU in 2024. These are also the same sectors where the EU stands to benefit from the trade deal. In particular, tariffs on cars will fall sharply from 110 per cent to 10 per cent, while high tariffs of up to 44 per cent on machinery, 22 per cent on chemicals, and 11 per cent on pharmaceuticals will be largely eliminated.
This represents a substantial reduction in market entry costs for EU exporters, making their products significantly more price-competitive in India. As a result, EU firms in these sectors could expand their market share, particularly in capital goods and high-technology products, where demand is less price-sensitive but was previously constrained by prohibitive tariffs. The sharp tariff cuts on automobiles are especially significant, as they transform what was effectively a closed market into a commercially viable one for EU producers. Overall, this could deepen EU penetration in high-value sectors and increase India’s access to advanced technologies and industrial inputs.
Figure 2: India’s imports from the EU by sector (2024)
The agreement creates these opportunities through various forms of market access. Some products are expected to move towards zero-duty access within three to five years, including processed foods and selected marine products. Other products, such as poultry products, preserved vegetables and bakery items, will benefit from preferential tariff reductions, while certain products, including shrimp and prawn products, will gain access through tariff-rate quotas. The key point is that these provisions reduce the tariff disadvantage faced by Indian exporters in sectors where even small price differences can affect market share.
This is particularly relevant for textiles and apparel. Indian exporters have historically faced a tariff disadvantage in the EU compared with competitors such as Bangladesh, Pakistan and Turkey, which benefit from preferential access to the European market. The FTA helps correct this gap by improving India’s tariff treatment in the EU’s large textile and apparel market. This could support export diversification while strengthening one of India’s most employment-intensive sectors, which is closely linked to MSME clusters and regional production networks.
The EU is India’s second-largest export destination for textiles and apparel after the US, while the EU’s global textile and apparel imports totalled USD 263.5 billion in 2024. By contrast, India’s textile exports to the EU were around USD 7.2 billion, indicating significant room for expansion if tariff preferences enable Indian firms to compete more effectively. The potential gains are therefore not only commercial but also developmental, given the sector’s role in job creation and small-firm participation.
Special Commitments – Trade in Services
The EU-India FTA provides specific commitments on trade in services between the two regions. This is particularly important given the changing nature of trade, driven by digital technologies, the trade in human capital, and the growing exchange of ideas and knowledge. This is particularly relevant for India, whose comparative strength in ICT and business services gives services trade a central role in its economic relationship with the EU.
Figure 4 shows EU exports of services to India as a share of total exports abroad and EU imports of services from India as a share of total imports from abroad. Both shares have increased over time, with the share of Indian exports to the EU exceeding that of EU exports to India.
In 2024, India’s largest services exports to the EU were other business services (€21.3 billion), ICT services (€12.9 billion), and transport services (€3.8 billion). Meanwhile, the EU’s largest exports to India in 2024 were also in the same three sectors, amounting to €9.5 billion in ICT services, €9.3 billion in transport services, and €6.1 billion in other business services. This overlap matters because it shows that services trade between India and the EU is not marginal to the relationship; it is increasingly concentrated in sectors that support digital trade, logistics, professional activity and wider business integration.
Figure 4: EU-India services trade (2016-2025)
Services trade becomes a central element of the EU-India FTA, reflecting the sector’s importance in both economies. The agreement provides substantial sectoral coverage through specific commitments in Chapter 8 of the FTA. For instance, India has secured commercially meaningful EU commitments in around 144 sectors and sub-sectors, including computer-related services, IT/ITeS, professional services, other business services and education services. In return, India has provided commitments across 102 sectors and sub-sectors of EU interest, including maritime transport, financial services, telecommunications and environmental services.
For India, the most significant opportunities may arise in ICT, IT/ITeS, other business services and professional services such as architecture and engineering. These are sectors where India already has export strengths and where demand could grow as firms rely more heavily on digitally delivered services, remote business support and specialised professional expertise. The agreement could also support the expansion of Global Capability Centres in India by improving predictability for cross-border services supply and strengthening links between Indian service providers and European clients.
In transport services, the expected benefits may be more mixed. India has preserved policy space in areas such as domestic coastal shipping, limiting the extent of liberalisation in this segment. However, the agreement can still create opportunities through commitments in maritime transport and related auxiliary services. Improvements in shipping, logistics, freight forwarding, storage and port-linked services could support goods exporters by reducing trade frictions and strengthening connectivity between Indian and European markets.
The service provisions should nevertheless be read with some caution. Although they create new commercial openings, conditions such as the movement of professionals and the governance of cross-border data flows, needed for services trade to expand smoothly, are not fully addressed within the FTA. The services chapter, therefore, represents a meaningful opening, but not full liberalisation. It can create opportunities in sectors where India and the EU already have strong commercial links, especially ICT, business services, professional services, transport, telecommunications and financial services. In this sense, the services provisions reinforce the wider logic of the FTA: the agreement is not only about expanding goods trade, but about widening the scope of EU–India economic cooperation across sectors where both sides have existing strengths and future growth potential.
Conclusion
The EU-India FTA comes at a critical juncture for both economies, offering an opportunity to deepen economic cooperation amid growing global uncertainty and shifting trade relationships. By reducing barriers to goods and services, the agreement can help the EU diversify its partnerships and strengthen its presence in one of the world’s fastest-growing markets, while enabling India to expand exports, attract investment, upgrade its industries and integrate more deeply into global value chains.
The analysis shows that the FTA’s potential lies in how it addresses complementary needs on both sides. For the EU, the agreement offers a chance to regain ground in the Indian market, particularly in high-value-added sectors where tariffs have limited commercial viability. For India, it offers an opportunity to improve competitiveness in the EU market, especially in labour-intensive and MSME-linked sectors where preference disadvantages have constrained export growth. At the same time, the agreement reflects the broader shift in EU-India trade, which is no longer limited to traditional goods but increasingly shaped by high-value-added goods and services.
The agreement offers a combination of scale, complementarity and unrealised potential, providing a clear framework for building a more balanced, diversified and commercially meaningful EU-India economic partnership.
The copyright of this article remains with the Politeia Research Foundation ©️PRF.
End Notes
1 Ministry of External Affairs, Government of India. (2026, May 11). Visit of Prime Minister to UAE, Netherlands, Sweden, Norway, and Italy (May 15–20, 2026). https://www.mea.gov.in/press-releases.htm?dtl/41126/Visit_of_Prime_Minister_to_UAE_Netherlands_Sweden_Norway_and_Italy_May_15__20_2026
2 ASML. (2026, May 16). Tata Electronics and ASML announce strategic partnership to advance the semiconductor manufacturing ecosystem in India. https://www.asml.com/news/press-releases/2026/tata-electronics-and-asml-announce-strategic-partnership
3 Euractiv. (2026, May 18). India, Sweden seal strategic partnership deal. https://www.euractiv.com/news/india-sweden-seal-strategic-partnership-deal/
4 Hinz, J., Langhammer, R., Mahlkow, H., & Thakur, V. (2026, January). The EU–India trade deal: Strategic diversification in an era of uncertainty (Kiel Policy Brief No. 202). Kiel Institute for the World Economy. https://www.kielinstitut.de/fileadmin/Dateiverwaltung/IfW-Publications/fis-import/82e3902e-610e-46e7-9176-83e37af0d5ab-KPB202.pdf
5 Delivorias, A. (2024, January). EU–India Trade and Technology Council. European Parliamentary Research Service. European Parliament. https://www.europarl.europa.eu/RegData/etudes/ATAG/2024/757587/EPRS_ATA(2024)757587_EN.pdf
6 EU–India Innocenter. (n.d.). Innovation and collaboration between India and Europe. https://euindiainnocenter.eu/
7Godara, S. (2026, February 2). India-EU trade deal: Beyond the “mother of all deals”. Lowy Institute. https://www.lowyinstitute.org/the-interpreter/india-eu-trade-deal-beyond-mother-all-deals
8 European Commission. (n.d.). Memo: EU–India Free Trade Agreement: Chapter-by-chapter summary. Directorate-General for Trade and Economic Security. https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/india/eu-india-agreements/memo-eu-india-free-trade-agreement-chapter-chapter-summary_en
8 European Commission. (2026, January 26). Questions and answers on the EU–India Free Trade Agreement. https://ec.europa.eu/commission/presscorner/detail/en/qanda_26_185
10 Ministry of Commerce & Industry, Government of India. (2026, January 29). Frequently asked questions: India and European Union Free Trade Agreement. Press Information Bureau. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2220413®=3&lang=2
11 Ministry of Commerce & Industry, Government of India. (2026, January 27). India and European Union trade agreement: “Mother of all deals” unlocking opportunities, empowering India@2047. Press Information Bureau. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2219146®=3&lang=2
12 Ministry of Textiles, Government of India. (2026, January 27). India–EU Free Trade Agreement: A transformational trade deal for India’s textile & apparel sector. Press Information Bureau. https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=2219250®=3&lang=2
13 Sahai, V., & Köhler-Suzuki, N. (2026, May 8). Emerging from the “zombie state” of trade agreements: The India-EU FTA. Carnegie Endowment for International Peace. https://carnegieendowment.org/india/posts/2026/05/emerging-from-the-zombie-state-of-trade-agreements-the-india-eu-fta
