India and the European Union are likely to announce the conclusion of talks on a long-pending free trade agreement (FTA) on January 27, in what leaders on both sides have described as the ‘mother of all deals.’
The agreement, under negotiation for over a decade, is being viewed as a major step towards deepening economic ties between the two regions amid rising global trade uncertainty, according to reports.
A research note by Emkay Global dated January 25 said a broad-based free trade agreement could substantially improve India’s trade position with the European Union.
The deal is expected to widen India’s trade surplus with the EU by more than $50 billion by FY31. It could also increase the EU’s share in India’s total exports to around 22–23 percent, up from 17.3 percent in FY25, giving a significant boost to India’s export growth.
At present, India accounts for only about 0.8 percent of the EU’s export market, but the agreement is gaining importance for Europe as well. The EU’s trade balance with India has shifted sharply in recent years, moving from a surplus of $3 billion in FY19 to a deficit of $15 billion in FY25.
The proposed pact also aligns with Europe’s broader strategy to reduce dependence on China and diversify global supply chains.
Shift Towards Higher-Value Exports
The expected gains from the agreement are likely to come from a gradual change in the composition of India’s exports to the EU. Higher-value products such as electronics, machinery, and chemicals are projected to gain a larger share, moving beyond traditional labour-intensive goods.
This shift is particularly significant as the EU’s share in India’s exports has declined to 16.8 percent so far in FY26.
Emkay Global noted that Europe’s reduced reliance on Russian energy and its efforts to source more goods outside China have already led to increased demand for Indian products such as refined fuels, electronics and chemicals.
A free trade agreement could further strengthen these trends by making trade more cost-effective and predictable. In FY25, total goods trade between India and the European Union crossed $136 billion.
India’s imports from the EU stood at $60.7 billion, while exports to the bloc were valued at $75.9 billion. Trade experts say the trade structure between the two sides is largely complementary rather than competitive.
Tariff Reductions Likely To Lower Costs
Ajay Srivastava, founder of the Global Trade Research Initiative, said Indian exports to the EU—including smartphones, garments, footwear, tyres, pharmaceuticals, auto parts, refined fuels and cut diamonds—largely replace imports that Europe earlier sourced from other countries. Many of these manufacturing activities had already been offshored by European firms years ago.
At the same time, EU exports to India consist of high-end machinery, aircraft, core electronic components, chemicals, advanced medical devices and metal scrap. These inputs support Indian factories, recycling units, and MSME clusters, helping improve productivity and export competitiveness.
The proposed agreement is expected to lower or eliminate tariffs on products from India’s labour-intensive sectors, while offering European companies better access to the Indian market for high-end cars and wines.
Srivastava noted that since India and the EU specialise in different segments of the economy, tariff reductions are likely to lower costs rather than displace industries.
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