Explained: 96.6% tariff cuts, €4 billion in savings - what makes EU–India FTA so crucial
Describing the pact as the most ambitious market opening India has ever offered a trading partner, the European Commission said it would give EU firms a strong competitive edge. The agreement grants privileged access to India’s 1.45-billion-strong market, with an annual GDP of around €3.4 trillion.
- Jan 27, 2026,
- Updated Jan 27, 2026 2:45 PM IST
The Free Trade Agreement (FTA) between the European Union and India is expected to double the bloc’s merchandise exports to India by 2032, as tariffs are eliminated or reduced on 96.6% of EU goods, the European Commission said on January 27. The tariff reductions are estimated to save about €4 billion annually in duties on European products, generating substantial benefits for EU exporters.
Describing the pact as the most ambitious market opening India has ever offered a trading partner, the European Commission said it would give EU firms a strong competitive edge. The agreement grants privileged access to India’s 1.45-billion-strong market—the world’s most populous and fastest-growing major economy—with an annual GDP of around €3.4 trillion.
Trade between EU and India
Trade and investment data underline the growing economic significance of relations between India and the European Union, even as both sides acknowledge that bilateral trade remains below potential. The EU is India’s largest trading partner, accounting for the biggest share of India’s external trade, while India ranks among the EU’s top ten global partners, reflecting the scale and resilience of the relationship.
Goods and services
Two-way trade in goods and services between India and the EU now exceeds €120 billion annually. Trade in goods constitutes the largest component, with bilateral merchandise trade estimated at around €120 billion. The EU exports high-value manufactured products to India, led by machinery and transport equipment, chemicals, pharmaceuticals and electrical equipment. These categories together account for a substantial share of EU shipments to the Indian market, highlighting Europe’s strength in capital goods and advanced manufacturing.
Imports from India
At present, imports from India into the EU are more diversified and labour-intensive in nature. Key product categories include textiles and garments, chemicals, engineering goods, leather products and agricultural commodities. India has also expanded exports of processed foods, marine products and light manufactured goods, benefiting from rising demand in European markets. Over the past decade, trade flows have shown steady growth despite disruptions caused by the pandemic, geopolitical tensions and global supply-chain volatility.
Services trade has emerged as a major pillar of EU–India economic engagement. India enjoys a strong surplus in this segment, driven primarily by information technology and IT-enabled services, business and professional services, and transport-related activities. Indian firms supply software development, back-office services and digital solutions to European clients, while EU companies export financial, travel and transport services to India. The growing contribution of services reflects deeper integration between Indian technology firms and European enterprises.
FDI in India
Investment links further reinforce bilateral ties. The EU is among the largest sources of foreign direct investment in India, accounting for a significant share of cumulative FDI inflows. European investments span manufacturing, automobiles, renewable energy, pharmaceuticals, chemicals, banking and insurance. These investments support large-scale employment in India and facilitate technology transfer and skill development. At the same time, Indian companies have made sizeable investments in the EU, particularly in IT services, pharmaceuticals, steel and automotive components, establishing India as an important investor and employer across several EU member states.
Untapped potential
Despite the scale of trade and investment, both sides continue to flag untapped potential. Average tariff levels, regulatory differences, standards-related barriers and limited market access in certain sectors have constrained faster expansion. This has renewed momentum around negotiations for a comprehensive EU–India free trade agreement, alongside parallel talks on investment protection and geographical indications. An eventual agreement is expected to lower tariffs, improve regulatory transparency and create a more predictable framework for businesses.
Trade discussions are also increasingly linked to strategic priorities. Cooperation on supply-chain resilience, critical raw materials, green technologies and the clean energy transition has gained prominence, particularly as the EU seeks to diversify sourcing and India aims to expand its manufacturing base. Digital trade, data flows and emerging technologies are also becoming central to the economic agenda.
India and the European Union first launched negotiations for a free trade agreement in 2007. The talks were suspended in 2013 before being revived in 2022, with the 14th and final formal negotiating round held in October 2025, followed by intersessional discussions at both technical and political levels.
As leaders engage at the highest political level, the numbers highlight both the depth and the limitations of EU–India trade relations. With bilateral trade already crossing €120 billion, the focus is now on whether policy initiatives and trade negotiations can unlock the next phase of growth in one of the world’s most important economic partnerships.
The Free Trade Agreement (FTA) between the European Union and India is expected to double the bloc’s merchandise exports to India by 2032, as tariffs are eliminated or reduced on 96.6% of EU goods, the European Commission said on January 27. The tariff reductions are estimated to save about €4 billion annually in duties on European products, generating substantial benefits for EU exporters.
Describing the pact as the most ambitious market opening India has ever offered a trading partner, the European Commission said it would give EU firms a strong competitive edge. The agreement grants privileged access to India’s 1.45-billion-strong market—the world’s most populous and fastest-growing major economy—with an annual GDP of around €3.4 trillion.
Trade between EU and India
Trade and investment data underline the growing economic significance of relations between India and the European Union, even as both sides acknowledge that bilateral trade remains below potential. The EU is India’s largest trading partner, accounting for the biggest share of India’s external trade, while India ranks among the EU’s top ten global partners, reflecting the scale and resilience of the relationship.
Goods and services
Two-way trade in goods and services between India and the EU now exceeds €120 billion annually. Trade in goods constitutes the largest component, with bilateral merchandise trade estimated at around €120 billion. The EU exports high-value manufactured products to India, led by machinery and transport equipment, chemicals, pharmaceuticals and electrical equipment. These categories together account for a substantial share of EU shipments to the Indian market, highlighting Europe’s strength in capital goods and advanced manufacturing.
Imports from India
At present, imports from India into the EU are more diversified and labour-intensive in nature. Key product categories include textiles and garments, chemicals, engineering goods, leather products and agricultural commodities. India has also expanded exports of processed foods, marine products and light manufactured goods, benefiting from rising demand in European markets. Over the past decade, trade flows have shown steady growth despite disruptions caused by the pandemic, geopolitical tensions and global supply-chain volatility.
Services trade has emerged as a major pillar of EU–India economic engagement. India enjoys a strong surplus in this segment, driven primarily by information technology and IT-enabled services, business and professional services, and transport-related activities. Indian firms supply software development, back-office services and digital solutions to European clients, while EU companies export financial, travel and transport services to India. The growing contribution of services reflects deeper integration between Indian technology firms and European enterprises.
FDI in India
Investment links further reinforce bilateral ties. The EU is among the largest sources of foreign direct investment in India, accounting for a significant share of cumulative FDI inflows. European investments span manufacturing, automobiles, renewable energy, pharmaceuticals, chemicals, banking and insurance. These investments support large-scale employment in India and facilitate technology transfer and skill development. At the same time, Indian companies have made sizeable investments in the EU, particularly in IT services, pharmaceuticals, steel and automotive components, establishing India as an important investor and employer across several EU member states.
Untapped potential
Despite the scale of trade and investment, both sides continue to flag untapped potential. Average tariff levels, regulatory differences, standards-related barriers and limited market access in certain sectors have constrained faster expansion. This has renewed momentum around negotiations for a comprehensive EU–India free trade agreement, alongside parallel talks on investment protection and geographical indications. An eventual agreement is expected to lower tariffs, improve regulatory transparency and create a more predictable framework for businesses.
Trade discussions are also increasingly linked to strategic priorities. Cooperation on supply-chain resilience, critical raw materials, green technologies and the clean energy transition has gained prominence, particularly as the EU seeks to diversify sourcing and India aims to expand its manufacturing base. Digital trade, data flows and emerging technologies are also becoming central to the economic agenda.
India and the European Union first launched negotiations for a free trade agreement in 2007. The talks were suspended in 2013 before being revived in 2022, with the 14th and final formal negotiating round held in October 2025, followed by intersessional discussions at both technical and political levels.
As leaders engage at the highest political level, the numbers highlight both the depth and the limitations of EU–India trade relations. With bilateral trade already crossing €120 billion, the focus is now on whether policy initiatives and trade negotiations can unlock the next phase of growth in one of the world’s most important economic partnerships.