India and the 27-nation European Union (EU) finalised a long-stalled free trade agreement (FTA) on Tuesday. It is being called the “mother of all trade agreements.” The announcement was made at the 16th India-EU Summit, co-chaired by European Council President António Luís Santos da Costa and European Commission President Ursula von der Leyen. Let’s find out what this agreement entails and what benefits it will bring to the countries involved.
Why is the agreement being called the “mother of all trade agreements”?
This India-EU FTA is being called the “mother of all agreements” by both sides because it aims to provide comprehensive economic benefits. Importantly, this agreement includes all 27 EU member states and will be effective for trade with all of them. India already has significant trade relations with countries like Germany, France, Italy, Spain, the Netherlands, Belgium, and Sweden. Therefore, India will directly benefit from this agreement.
Significant impact on industrial and technological products
After this FTA, the 22 percent tariff on chemical products imported from the EU will be almost eliminated, making a wide range of products cheaper. The reduction in the 44 percent tariff on European machinery will lower capital goods and industrial costs. The elimination of the 11 percent tariff on EU pharmaceutical products will make nearly 90 percent of medicines, optical, medical, and surgical equipment cheaper. Tariffs on aviation and aerospace equipment will also be eliminated.
Luxury cars will become cheaper in India.
This FTA will have a major impact on the automotive sector. European cars like Mercedes, BMW, and Audi will now become significantly cheaper. Previously, these cars were subject to import duties of over 100 per cent. Still, now, for cars costing more than 15,000 euros (approximately 16.30 lakh rupees), this duty will be reduced to 40 per cent, then gradually to 10 per cent. This will lead to a reduction of several lakh rupees in the prices of these luxury cars in the future.
India will also benefit in these sectors.
This FTA will eliminate tariffs on aircraft parts, mobile parts, and high-tech electronic equipment, reducing the cost of electronics and manufacturing in India. This will make mobile phones and other electronic goods or their components significantly cheaper for consumers. Similarly, zero tariffs are proposed for iron, steel, and chemical products. This will lower the prices of raw materials in the construction and industrial sectors, making it cheaper to build houses or buy industrial goods.
Indian exporters will benefit significantly.
This agreement will not only make goods cheaper but will also provide Indian textile, leather, diamond and jewellery businesses access to the vast European market. With the elimination of taxes on Indian textiles, India will surpass Bangladesh and Vietnam to become the number one.
Food and beverages will also be affected.d
This FTA will significantly reduce or eliminate tariffs on olive oil, margarine, and select vegetable oils, making these products much cheaper. Import duties on fruit juices and processed food products will be removed. The beer tariff will be reduced to 50 per cent. Similarly, the 100-125 per cent tariff on wine and whiskey will be reduced to 20-30 per cent. This will make foreign premium whiskey brands more accessible to people.
European companies will also benefit significantly.
Under the FTA, India has also given significant concessions to the EU. Under this agreement, tariffs on cars will be reduced from 110% to 10% in a phased manner, tariffs on auto parts will be eliminated within 5-10 years, and tariffs of 44% on machinery, 22% on chemicals, and 11% on pharmaceuticals will be almost eliminated. New export opportunities will be created for European SMEs. For this, both sides will establish SME-supported helpdesks and contact points.
Tariffs will also be reduced on these European products.
Under the agreement, India’s average tariff on EU agricultural and food products will be reduced or eliminated. Tariffs on wine will be reduced from 150% to 75% initially and then to 20%. Tariffs on olive oil will be reduced from 45% to zero over the next 5 years, and tariffs on processed foods such as bread and confectionery will be eliminated up to 50%. However, the EU’s agricultural sector (beef, chicken, rice, and sugar) has been protected.
Impact on total trade
Under this agreement, low or zero tariffs will apply to more than 90% of EU products exported to India. It is estimated that this will save European exporters approximately 4 billion euros (approximately ₹43,540 crore) annually, directly benefiting Indian consumers and domestic industries. This agreement represents the largest trade concession ever granted by India to any trading partner. Therefore, it is a subject of discussion worldwide.
How much trade is there between India and the EU?
The EU is India’s largest trading partner. In the financial year 2024-25, bilateral trade in goods between the two amounted to $136.53 billion (approximately ₹12.28 lakh crore). This included Indian exports of $75.85 billion (approximately ₹6.82 lakh crore) and imports of $60.68 billion (approximately ₹5.46 lakh crore). In addition, the EU’s foreign direct investment (FDI) in India amounted to $117.4 billion (approximately ₹10.56 lakh crore) from April 2000 to September 2024.
