Opinion India–EU FTA is less a triumph of patient diplomacy, more a response to an unpredictable world
By signing the EU deal, India signals the constraints it is willing to live with, and to what extent. US tariffs have forced a choice; the EU FTA, in turn, provides India with time to gradually wean itself away from Russian dependence
Prime Minister Narendra Modi, European Commission President Ursula von der Leyen and European Council President António Costa witness the exchange of an MoU during the joint Press Statement, at Hyderabad House in New Delhi on Tuesday. External Affairs Minister S. Jaishankar also present. (ANI Photo) On a crisp January day in 2026, India and the European Union announced what has been described as “the mother of all trade deals”: A comprehensive Free Trade Agreement (FTA) that took 19 years to materialise. When negotiations first began in 2007, the world was a very different place. The iPhone had just been launched, India was adding 18 million subscribers a month to its telecom subscriber base, Lehman Brothers was still solvent, and the global order seemed settled. Few would have predicted that nearly two decades later, after a pandemic and amid an increasingly unpredictable global power acting as though the world owes it respect, recognition, and money, both sides would be compelled to conclude what had long seemed impossible.
The “mother of all deals” metaphor can be interpreted in several ways, but it is best read as a signal of something deeper. Two democratic partners, one that privileges standards as protection (the EU) and the other tariffs (India), have managed to set aside long-standing differences to forge an alliance. What has emerged is not merely a trade agreement, but a broader strategic partnership encompassing trade, investment, defence cooperation, and supply-chain resilience. This reflects not only how much India and the EU have changed, but more importantly, how profoundly the world itself has transformed. The relevant question, then, is simple: Would this deal have been signed had the world remained as it was in 2007? The answer, almost unambiguously, is no. The India–EU FTA is less a triumph of patient diplomacy than a rational response to a world that has become markedly more dangerous, unpredictable, and multipolar.
But it has happened — and that is what matters. Tariff reductions for India, whether achieved through international agreements or by unilateral inspiration à la 1991, are good for the economy. They foster competition, improve efficiency, and expand markets. Thirty-five years after a round of inspired economic thinking by the then finance minister, Manmohan Singh, one might reasonably expect Indian industry to be ready to move beyond a protectionist mindset. Perhaps this agreement will provide precisely the push that was needed. India has, for instance, agreed to reduce tariffs on cars imported from the EU to 40 per cent from peaks as high as 110 per cent, with a path toward eventual reduction to 10 per cent. These changes are likely to generate significant pro-competitive spillovers. The same applies to wines and spirits, which have been granted treatment similar to that under the Australia and New Zealand FTAs. Crucially, Indian spirits will also gain access to the EU market, as will services. As with any bilateral trade agreement, gains accrue to both sides. European buyers benefit from reliable supplies from a cost-competitive source, while India gains an incentive to upgrade quality standards, not only for exports, but for domestic consumers as well.
Sensitive areas in the farm sector have been excluded from the FTA . In 2024, India exported $4.2 billion worth of food and beverages to the EU, ranking a distant 30th among EU suppliers, behind countries such as Vietnam and Thailand. The binding constraint here is not tariffs but standards. The EU market is governed by stringent sanitary and phytosanitary measures, traceability requirements, and sustainability norms that Indian exporters often struggle to meet consistently. Here, too, the agreement should be viewed less as a concession than as an opportunity to build capacity and upgrade compliance regimes.
The FTA will also help restore competitiveness lost after the withdrawal of tariff concessions under the EU’s Generalised System of Preferences (GSP), particularly in textiles, garments, gems and jewellery. These sectors have been hit hard by the penal 50 per cent US tariff imposed in response to India’s purchase of Russian oil. Unsurprisingly, the US has criticised the FTA, arguing that it risks indirectly fuelling Russian aggression.
Students of international economics are well acquainted with the Mundell–Fleming trilemma: A country cannot simultaneously maintain free capital flows, a fixed exchange rate, and independent monetary policy. One of the three must give way. The elegance of this result lies not in its mathematics but in the recognition that constraints force choices, and that those choices reveal priorities. The India–EU trade deal can be understood through a similar lens. India today confronts what might be called a strategic trilemma. It cannot simultaneously pursue deep economic partnership with the United States, maintain vast defence and energy ties with Russia, and preserve strategic autonomy. By signing the EU deal, India signals the constraints it is willing to live with, and to what extent. US tariffs have forced a choice; the EU FTA, in turn, provides India with time to gradually wean itself away from dependence on Russia.
For the EU, facing economic stagnation, an ageing population, and excessive dependence on China, India, with 1.4 billion people, a young workforce, and status as the fastest-growing major economy, represents a credible hedge. The EU already ranks among India’s top trading partners, alongside the US and China, with total bilateral goods and services trade exceeding $190 billion in 2024–25. India exported roughly $76 billion in goods and $30 billion in services, no small achievement. And in signing the EU deal, India has also made a strategic statement about its future. This is an opportune moment to signal to Indian industry that the walls of protectionism are coming down irreversibly.
What’s more, since modern trade agreements are less about tariffs and more about regulatory frameworks, product and process standards, intellectual property, investment protection, and other non-tariff measures, the EU FTA offers India an opportunity to modernise its domestic regulatory architecture. Upgrading food safety systems, industrial standards, and environmental compliance to EU benchmarks will generate positive externalities. Domestic consumers will benefit from higher-quality products, while Indian exporters gain credibility in other premium markets.
More strategically, alignment with EU standards positions India favourably for potential accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a mega-regional bloc encompassing 11 Pacific Rim economies, including Japan, Australia, Canada, and several ASEAN members — conspicuously excluding both the United States and China. CPTPP membership would integrate India into supply chains accounting for 13.5 per cent of global GDP, while reducing overdependence on any single great power. Seen this way, the EU deal is not an endpoint but a form of institutional preparation; strengthening regulatory capacity, and maintaining the reform momentum for India’s next strategic move within a plurilateral economic architecture.
Kathuria is dean, School of Humanities and Social Sciences, Shiv Nadar University, and Professor of Economics. Views are personal
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