India and the European Union are poised to announce the finalization of discussions on a significant free trade agreement on January 27. This deal, termed the “mother of all deals” by leaders on both sides, has been in the works for over a decade. The agreement is viewed as a crucial move in strengthening economic relations between the two regions amid global trade uncertainties.
A research note by Emkay Global, dated January 25, suggests that a comprehensive free trade agreement could greatly enhance India’s trade position with the European Union. It is projected that the agreement could lead to an increase of over $50 billion in India’s trade surplus with the EU by FY31. Additionally, the EU’s share in India’s total exports is expected to rise to approximately 22–23 percent, up from 17.3 percent in FY25, thereby giving a significant boost to India’s export growth.
The anticipated gains from the agreement are likely to stem from a gradual shift in the nature of India’s exports to the EU. It is predicted that higher-value products such as electronics, machinery, and chemicals will see a greater share, moving beyond the conventional labor-intensive goods. This shift is crucial as the EU’s share in India’s exports has decreased to 16.8 percent in FY26.
Trade experts highlight that the trade structure between India and the EU is predominantly complementary rather than competitive. Ajay Srivastava, founder of the Global Trade Research Initiative, pointed out that Indian exports to the EU, including smartphones, garments, footwear, pharmaceuticals, and auto parts, largely substitute imports that Europe previously obtained from other nations. On the other hand, EU exports to India encompass high-end machinery, aircraft, core electronic components, chemicals, advanced medical devices, and metal scrap, supporting various sectors in India and enhancing productivity and export competitiveness.
The proposed free trade agreement is expected to reduce or eliminate tariffs on products from India’s labor-intensive sectors while granting European companies improved access to the Indian market for high-end cars and wines. Srivastava emphasized that since India and the EU specialize in different economic segments, tariff reductions would primarily lower costs rather than displace industries.
