By: Marta Bengoa
European Commission President Ursula von der Leyen and India’s Minister for Commerce and Industry Piyush Goyal have both dubbed it "the mother of all deals," and for once, the hyperbole fits. The India-EU free trade agreement, being announced tomorrow, will connect over two billion people across a market representing nearly a quarter of global GDP. But the real story isn't about size. It's about timing. After 17 years of false starts and negotiations, both parties finally grasped what's at stake: in a world fragmenting between Washington's capricious tariffs and Beijing's economic coercion, this deal is economic insurance.
India and the EU conduct $136 billion in annual goods trade and nearly $70 billion in services, and the EU had more than $150 billion in foreign direct investment in India in 2024. Yet the relationship has operated below potential, constrained by high Indian tariffs and European apathy. For India, the deal couldn't come at a more critical moment. On January 1st, the EU withdrew Generalized System of Preferences benefits affecting 87% of Indian exports. Indian apparel makers who paid 9.6% tariffs now face the full 12% most-favored-nation rate, eroding competitiveness precisely when U.S. reciprocal tariffs hit Indian goods at 50%. That timing matters: losing preferential access to your largest trading partner while your second-largest partner weaponizes tariffs leaves few options beyond negotiating new deals.
For Europe, the calculation is equally stark. European exporters have watched Korean and Japanese competitors capture the Indian automotive market share through preferential agreements that Brussels failed to secure. India accounts for barely 2.4% of total EU trade despite being the world's fifth-largest economy. As the United States retreats into protectionism and China leverages market access for geopolitical ends, Europe needs economic partnerships without political strings.
The economic benefits flow in both directions, creating genuine complementarity rather than zero-sum competition. For India, European tariff elimination opens markets for textiles, pharmaceuticals, and engineering goods where Indian producers already compete globally but face barriers entering Europe. The automotive provisions illustrate mutual gains: India cuts import duties from 110% to 40% on high-end vehicles, giving BMW and Mercedes access to India's expanding luxury market while protecting domestic mass-market manufacturers. European machinery and intermediate goods flow into India at lower tariffs, raising productivity in Indian factories. Meanwhile, Indian scale manufacturing delivers affordable consumer products to Europe.
For Europe, the deal provides supply chain diversification beyond China. India's manufacturing share of GDP sits at 13% compared to China's 26%, meaning substantial growth potential in sectors where European firms need alternatives. Green industries prove particularly promising: European investment in Indian steel, aluminum, and renewable energy benefits from India's lower labor costs and growing domestic market while helping Europe meet climate commitments without depending on Chinese supply chains.
The numbers quantify opportunities. India's 1.4 billion people include 40% under age 25 by 2030. India's average tariff of 17%, compared to Vietnam's 9.6% and Malaysia's 5.6%, deters export-oriented investment. Tariff elimination on intermediate goods makes India competitive as a manufacturing base.
But tariffs tell only part of the story. India's quality control orders impose mandatory facility audits, creating costs exceeding tariff burdens. EU Trade Commissioner Maroš Šefčovič met his Indian counterpart Piyush Goyal ten times over the past year because resolving non-tariff barriers requires regulatory cooperation, which most trade agreements defer. Whether solutions actually reduce costs without undermining India's regulatory sovereignty will determine if the deal delivers promised benefits.
Investment provisions split facilitation commitments (in the FTA) from protection standards (deferred to a separate state-to-state agreement), avoiding ratification obstacles that have prevented every EU-level investment protection agreement from entering force. Whether firms actually commit capital remains uncertain until implementation begins.
Sustainability provisions navigate sensitive terrain. India refuses binding dispute settlement for trade violations, so the compromise establishes cooperation without sanctions. India's concerns about the Carbon Border Adjustment Mechanism (CBAM) get addressed through technical assistance for carbon pricing rather than exemptions, leaving fundamental tensions between EU climate standards and Indian development priorities unresolved.
The immediate timeline tempers enthusiasm. European Parliament ratification takes at least a year, meaning implementation by early 2027 at the earliest. Trade agreements redistribute activity rather than create it, producing winners and losers within both economies. Indian automotive workers face new competition while European textile manufacturers confront efficient Indian producers. Yet the strategic rationale transcends these complications. India needs stable conditions for export-oriented manufacturing to compete with Vietnam, Thailand, and Malaysia in attracting firms diversifying beyond China. Europe needs economic partnerships that provide leverage against American protectionism and Chinese pressure without requiring political alignment on every foreign policy question. The deal creates frameworks for managing economic frictions between partners who share many interests.
What distinguishes success from failure this time is political will. The 2013 collapse in EU-India trade negotiations came when leaders refused difficult compromises despite being tantalizingly close. Modi and von der Leyen invested personal capital, meeting regularly and directing negotiators toward pragmatic solutions. The question isn't whether the agreement satisfies any party's ideal preferences. It's whether it creates sufficient momentum to transform an underperforming strategic partnership into genuine economic integration.
In a fragmenting global economy where rules-based multilateralism yields to power-based bilateralism, the India-EU agreement represents a significant down payment on strategic autonomy. Whether it delivers depends less on tariff schedules than on implementation: addressing regulatory barriers, facilitating actual investment flows, and managing domestic political resistance to adjustment costs. Economic insurance only pays out when parties file claims. The real test begins after the signatures dry.
Marta Bengoa is a Non-Resident Fellow at ORF America.