Why does the India and EU Free Trade Agreement matter in 2026, especially to EU companies?

The India and EU Free Trade Agreement connects two economic giants. As per recent government reports published by the Ministry of Commerce and Industry, India and the European Union account for 25% of global GDP, serving a combined market of nearly 2 billion people.

With bilateral trade of EUR 120 billion in 2024, counting 11.5% of India’s total trade, the EU stands as one of the largest trading partners of India.

Currently, with the FTA in place, the numbers are expected to rise. Seamless market access and low-to-no tariffs make India one of the most attractive destinations for foreign companies today.

Background: The Evolution of India and EU Trade Relations  

India and the European Union share a long history of economic engagement. Here are some of its highlights:

●   Total India trade with the EU in goods was about USD 136.53 billion in 2024-25, with Indian exports at USD 75.85 billion and imports at USD 60.68 billion. 

●   India hosts more than 6,000 European companies, captivating EU investments of over EUR 120 billion.

●   Trade in services between the two partners reached EUR 59.7 billion in 2023. 

Negotiations for comprehensive trade deals between the EU and India started in 2007 under the Broad-based Trade and Investment Agreement (BTIA).

However, it was stalled due to global supply chain disruptions, differences in public procurement and rising protectionism.  After almost 2 decades of on-and-off negotiations, the talks have finally resulted in a comprehensive agreement in 2026.

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Updated Tariff Liberation and Market Access  

Tariff liberalisation is the heart of the India - EU FTA. As per the agreement, India will eliminate tariffs on about 96.6% of EU goods by value, covering machinery, automotive parts, chemicals, and more.

The EU, on the other hand, will release around 99.5% of tariff lines for Indian exports. Some of the tariffs will be removed immediately, and others will be reduced in 3 to 5 years.

This makes trade between India and the EU more cost-effective. Let us take a look at how this tariff liberalisation improves market access across industries:

1. EU Market Access for Indian Goods
   
   1. Zero tariff on Indian marine goods, chemicals, base metals, gems, leather and textile products will be slashed to zero.
   2. 6.1% of tariff lines covering 6% of India’s exports have preferential access for tariff reduction. 

For example, the gems and jewellery sector expects bilateral trade to double to around USD 10 billion in a few years due to zero-duty access.

2. Indian Market Access for EU Products and Supplies
   
   1. EU exports to India include machinery, transport equipment, chemicals, and medical devices sectors with high value and innovation.
   2. Other European goods such as wines, beers, olive oil and spirits will also see tariff reductions over time, making them more affordable.

Earlier, tariffs as high as 110% made many EU products expensive in India. Under the FTA, these tariffs will be gradually reduced to 10% for certain vehicles, allowing quota-based entry for premium vehicles.

Impact of FTA on Different Industries

1. Automobile and Manufacturing Sector  
   
   1. EU car manufacturers will find India a more accessible market due to reduced tariffs and more predictable trade rules.
   2. Apart from vehicles, automobile parts and industrial machinery will see lower import duties, helping European suppliers to find new customers.
2. Knowledge and Services Trade  
   
   1. India’s IT and digital services are expected to grow with improved access to European markets.
   2. European firms will also gain from clear trade rules to provide professional services in India.
3. Investment and Technology Sector  
   
   1. The EU is already one of India’s top sources of foreign direct investment (FDI), with an offering of EUR 140 billion by 2023.
   2. This agreement enhances investment protections, supporting EU firms to expand manufacturing and R&D centres in India.

How does the FTA Benefit EU Companies Entering or Expanding in India?  

The India and EU Free Trade Agreement offers various advantages to EU firms willing to do business in India. Here are some of them:

●   Tariff Savings: EU exporters can save an estimated EUR 4 billion annually through reduced duties on most goods.

●   Market Growth: India’s economy is projected to grow at 6.8% in 2026 and 7.2% in 2027, making it one of the fastest-growing markets. 

●   Predictable Rules: Clear trade and investment regulations reduce risk for European businesses.

●   Services Market Access: EU firms gain increased participation in India’s services economy.

These benefits collectively create a strong platform for EU companies to build local partnerships with Indian businesses and invest in long-term growth.

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How does the FTA Promote Sustainable Trade?  

The FTA aligns trade liberalisation with environmental and labour standards. Here’s how:

●   It incorporates sustainable development and manufacturing to encourage responsible production and supply chains.

●   Industries like green energy and low-carbon technologies receive added support of EUR 500 million in the next 2 years through regulatory alignment.

What are the Financial Benefits of India-EU Free Trade Agreement? 

The financial impact of this free trade pact is substantial. Since lower tariffs mean reduced costs for EU businesses, it will increase competitiveness in the Indian market. As per an analysis for the World Economy, FTA aims to increase the bilateral trade between India and the EU by 41% to 65%. Other benefits include:

For Indian Suppliers:

1. Technological Upgradation: Indian suppliers will adopt advanced European machinery and digital tools, increasing productivity.
2. MSME Integration: Enhanced market access helps integrate Indian MSMEs into EU supply chains.
3. Employment Generation: Growth in exports and investments can create jobs in various sectors.

For the European Union:

1. Access to a Fast-Growing Market: India’s rising middle class and consumer demand provide long-term opportunities for EU goods and services.
2. Supply Chain Resilience: Diversification rather than over-dependence on any one region strengthens risk management.
3. Strategic Presence in Asia: India becomes a key partner for European firms seeking a strong base in South Asia.

What are the Exclusions of the India and EU Free Trade Agreement? 

Despite the comprehensive coverage, certain sensitive sectors have been excluded from the agreement, such as:

●   Soya

●   Beef

●   Sugar

●   Rice

●   Dairy

What Happens Next? 

The deal still needs formal ratification by EU member states, the European Parliament, and India’s government, which could take over a year. Once implemented, companies must:

●   Align the policy and compliance as per the updated trade rules.

●   Identify partner networks early for better gains.

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What Role Does Tecnova Play in Simplifying This Bilateral Trade?

Tecnova acts as a strategic partner for EU companies navigating the Indian market. We provide professional support in:

●   Market Entry: Offering proper aid in compliance and regulatory needs.

●   Partner identification: Connecting EU firms with Indian suppliers and MSMEs.

●   Investment facilitation: Helping to structure investments and expansion plans.

●   Long-term growth: Supporting operational setup and supply chain optimisation.

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Tecnova’s expertise brings clarity to complex trade environments, empowering EU companies to benefit fully from this landmark India and EU Free Trade Agreement.

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*Note: USD 1 equates to ₹91.94.

*Note: EUR 1 equates to ₹109.60.  

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Refrences

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