EU and India Finalise Historic “Mother of All Deals”
Synopsis
India's EU trade deal agreed on Tuesday will scrap or cut tariffs on 96.6% of traded goods, doubling EU exports to India by 2032. The hard-fought agreement between the two trading giants after two decades of negotiations will save European companies 4 billion euros a year in tariffs. It will include Indian car tariffs being cut from 110% to around 10%, while duties on spirits and wines will be brought down, and the EU is expected to do away with all duties on Indian textiles, leatherware and jewellery. The partnership reflects both sides’ desire to lessen reliance on the United States amid global trade tensions and will take effect within a year after the completion of legal vetting.
The India-EU trade deal signifies a breakthrough after two decades of torturous negotiations between the world’s largest democracy and the European bloc. Indian Prime Minister Narendra Modi described it as “the mother of all deals” that will create huge opportunities for India’s 1.4 billion people and millions of Europeans. Europe is making history today” with India, insisted European Commission President Ursula von der Leyen and “this is just the beginning of a closer economic relationship.
The EU will reduce tariffs on 99.5% of goods imported from India over seven years, with duties wiped out altogether on Indian marine products, leather and textiles, chemicals, rubber, base metals and gems and jewellery, India’s trade ministry said. Sensitive agricultural products such as soya, beef, sugar, rice and dairy have been excluded from the agreement to shield domestic farmers in both regions.
Massive Savings and Market Access
The agreement, as anticipated, will allow European companies to save around 4 billion euros annually in duties and give them relief from high costs when exporting goods into India’s expansive market. Trade in goods between India and the EU was worth $136.5 billion in the fiscal year through March 2025, compared with $132 billion between India and the United States and $128 billion between India and China. Europe is one of the largest trading partners for India.
The agreement opens India’s heavily protected market in several important areas. Tariffs on cars from Europe will plummet to 10 per cent over the next five years, down from as high as 110 per cent today, a big victory for carmakers like Volkswagen, Renault, Mercedes-Benz and BMW. The car tariff cut will cover 250,000 cars, all the vehicles in demand by consumers that are valued at more than 15,000 euros per unit with taxes reduced to between a range of 30 and 35 per cent once the deal is effective.
Key Benefits for Both Sides
EU goods exports to be doubled by 2032 by liberalising more than 90% of EU and Indian tariffs
India’s key demands include: Brown rice and low-fat beef(1%). 0% tariff preference for engineering goods. from their possession, control or command (S/RES/2231)”. No-tariff access to European markets of marine products, leather, textiles, gems and jewellery under GSP(42%).
European car makers rejoice slashing of India’s auto tariffs from 110% to 10%
Timing Reflects Shifting Global Landscape
The increasing urgency to seal the India-EU trade deal gained momentum when Washington slapped a 50 per cent tariff on some Indian goods and the US allies resisted President Donald Trump’s threat of tariffs and his overture to purchase Greenland. The pact mirrors a larger trend of countries looking to diversify their trading relationships away from the United States.
Canadian Prime Minister Mark Carney, who earlier called on middle powers to unite or be at the mercy of larger economies, was given a standing ovation for his speech in Davos last week. He is preparing to visit India where he will seal deals on uranium, energy and minerals after recently cutting a deal with China, illustrating how traditional US allies are seeking their own trade strategies.
In signing up with India, the EU also clinched a deal with the South American bloc Mercosur, after agreements last year with Indonesia, Mexico and Switzerland. In between, India had a deal with Britain and with New Zealand while going into talks with Oman making a point of showing for both sides that wider and more roundly knit global trade networks will be striven for.
Significant Market Opening Measures
India is offering significant concessions on other sectors, too, beyond automobiles. The tariffs on alcoholic beverages, including wines, will be reduced at once from 150 per cent to 75 percent, being gradually lowered over time to 20 percent. Tariffs on spirits will be cut to 40 per cent, a move that will benefit European wine and liquor producers keen for access to India’s expanding consumer market.
The accord will lower tariffs on machinery, electrical equipment, chemicals and iron and steel products shipped from Europe to India as well. But there was little immediate relief for Indian companies hit by the EU’s Carbon Border Adjustment Mechanism that took effect Jan. 1. This carbon tax is to apply to sectors including steel, cement, electricity, fertilizers and so on although India got an assurance the European Union would give flexibilities if presented to any third countries. In a separate measure, the EU agreed to give 500 million euros over two years to assist India in cutting carbon emissions.
Implementation Timeline and Challenges
The formal signing of the India-EU trade deal will take place after it has undergone legal vetting that is likely to last five to six months, an Indian government official said. “We are expecting that the agreement will take about a year to be put in place,” the official said, although there may also be complications in vetting along the lines of those encountered with the EU-Mercosur deal, which ended up facing a challenge by E.U. lawmakers at the bloc’s highest court.
It would fundamentally recast the economic relationship between India and Europe, offering new opportunities for businesses and consumers on both ends while enabling both to minimise their reliance on unpredictable American trade policies.
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