From Trade to Defence: India-EU Sign ‘Mother of All Deals’ After Two Decades of Talks

Just days after European leaders joined India’s 77th Republic Day celebrations as guests of honour, India and the European Union signed a long-awaited Free Trade Agreement (FTA) during the 16th India-EU Summit in New Delhi on January 27, 2026. The deal marks a major breakthrough in India-EU relations after nearly two decades of negotiations.

European Commission President Ursula von der Leyen described the agreement as the “mother of all deals”, saying it creates a free trade zone for nearly two billion people across India and the 27-nation European Union. Prime Minister Narendra Modi called it India’s biggest FTA so far and termed it as a “blueprint for shared prosperity” that will boost investment, deepen innovation partnerships, strengthen global supply chains and open new opportunities for people and businesses on both sides.

The agreement brings to a close talks that began in 2007, stalled in 2013 due to differences over tariffs and market access, and were revived in 2022 amid global disruptions such as supply chain shocks, rising trade tensions and high US tariffs pressure.

What the India-EU Free Trade Agreement Covers

The India-EU FTA is one of the most comprehensive trade deals India has ever signed. It covers trade in goods and services, investment facilitation, customs procedures, intellectual property rights, sustainable development and support for small and medium enterprises (SMEs).

At its core, the agreement aims to reduce or eliminate tariffs on the vast majority of goods traded between India and the EU, while protecting sensitive sectors on both sides. It also includes strong commitments on services trade. European firms will get better access to Indian sectors such as financial services and maritime transport, while India has secured improved market access for its strengths in IT services, professional services and digitally delivered work.

A dedicated chapter focuses on SMEs, setting up contact points to help smaller businesses understand rules, resolve issues and take advantage of new opportunities. This is meant to ensure that the benefits of the deal are not limited to large corporations alone.

Security and Defence Partnership Signed

Alongside the trade deal, India and the EU also signed a Security and Defence Partnership on the margins of the summit. The agreement was signed by EU High Representative for Foreign Affairs Kaja Kallas and India’s External Affairs Minister S. Jaishankar.

The partnership expands cooperation in areas such as maritime security, cyber defence, artificial intelligence in defence applications, counterterrorism, space security, non-proliferation, hybrid threats and defence industry collaboration. An annual India-EU Security and Defence Dialogue will guide implementation and allow both sides to review progress and respond to new challenges.

Von der Leyen said the partnership would increase resilience against all forms of threats. Defence Minister Rajnath Singh highlighted the shared democratic values of India and the EU and underlined the scope for practical cooperation, including joint exercises in the Indian Ocean Region.

Key Tariff Reductions Under the Agreement

Tariff cuts are the heart of the India-EU FTA and are expected to make trade cheaper and more competitive over time. Under the agreement, India will eliminate or reduce tariffs on 96.6% of EU goods exports. Many products will get zero-duty access either immediately or in phases over five to ten years. Tariffs on machinery and electrical equipment, currently as high as 44%, will be gradually brought down to zero. Duties on aircraft and spacecraft, chemicals, pharmaceuticals, plastics, iron and steel, and optical and medical equipment will also be phased out.

In the automobile sector, import duties will be reduced step by step from the current 110% to as low as 10%. However, major tariff cuts on electric vehicles will be delayed for the first five years to protect India’s growing domestic EV industry.

In agri-food products, tariffs on European wines will fall sharply from 150% to around 20–30%. Olive oil duties will drop from 45% to zero over five years, and tariffs of up to 50% on processed foods such as bread and confectionery will be removed. At the same time, sensitive products like beef, chicken, rice and sugar will remain protected.

On the other side, the EU will open 97% of its tariff lines to India, covering 99.5% of India’s export value. Many Indian products will get zero-duty access immediately or after a short transition period. These include textiles and apparel, leather and footwear, gems and jewellery, marine products like shrimp and frozen fish, chemicals, plastics, base metals, sports goods, toys and handicrafts. Some items, such as certain poultry products and steel, will face partial tariff cuts or quota-based access.

What Does the Deal Mean for 2 billion people?

For ordinary people, the impact of the India-EU FTA will be felt in everyday life over time. Consumers in India could see European cars from brands like BMW, Mercedes-Benz, Volkswagen and Renault become more affordable as import duties fall from 110% to around 10% in stages. While changes will take time and be subject to quotas, prices are expected to ease gradually. Electric vehicles, however, will not see immediate tariff cuts.

Food and drink options are also likely to expand. European wines, olive oil, chocolates, pastries, beer and spirits could become cheaper as steep tariffs are reduced. Shoppers may see more choice on supermarket shelves at lower prices.

For workers, the deal could bring more jobs and better incomes. Labour-intensive sectors such as textiles, leather, gems and jewellery, marine products and handicrafts are expected to see higher exports to Europe, benefiting workers in factories, farms and coastal areas. Indian IT professionals and service workers may also find it easier to work in Europe on short-term assignments under improved mobility rules.

Overall, the agreement promises more choices, lower prices on some imports, stronger job opportunities and wider economic growth that can reach households over time.

How the Deal Benefits India

India gains a lot from this. The EU market opens wider for Indian exports, especially in labour-intensive sectors that employ millions. Many of these products will enjoy zero tariffs, making Indian goods more competitive.

India has also secured better access for its services sector, particularly IT and professional services, which is stronger than what India has achieved in several earlier trade deals. Mobility provisions will make it easier for Indian professionals to work in Europe temporarily.

The agreement supports India’s “Make in India” push by encouraging investment, boosting exports and strengthening links with global value chains.

Why the Deal Matters for the EU

For the European Union, the deal opens access to India’s massive market of 1.45 billion people and one of the world’s fastest-growing major economies. EU exports to India are expected to double by 2032, with savings of about €4 billion every year in duties.

Key EU sectors such as machinery, chemicals, aircraft, automobiles and agri-food products stand to gain. The agreement also gives EU companies a competitive edge through simpler customs procedures and stronger intellectual property protection. At a time of global uncertainty, the deal helps the EU diversify trade away from over-dependence on a few major markets and strengthens ties with another large democracy.

When Will the Deal Come Into Force?

The agreement is not yet operational. Negotiated texts will undergo legal scrubbing, translation into all official EU languages and publication in the coming weeks. The European Commission will then submit the proposal to the EU Council for authorisation to sign. Following Council approval, formal signing can take place. The deal still requires consent from the European Parliament and a final Council decision on conclusion, as well as ratification in India. Tariff reductions will be implemented in phases over three to ten years depending on the product category. Full application is expected to begin in 2027 or shortly thereafter.

Background: A Long Road to the Deal

India-EU FTA talks began in 2007 but were suspended in 2013 due to disagreements over tariffs, agriculture and automobiles. Negotiations restarted in June 2022 as global conditions changed and both sides saw value in closer cooperation. The final push came after the last formal round in October 2025.

Separate talks on investment protection and geographical indications are still ongoing.The agreement marks a major step forward in India-EU economic and strategic ties. As von der Leyen said, it is not the end but the beginning of a deeper partnership that could reshape trade, jobs and growth for years to come.