India and the EU have finalised a landmark trade deal, both sides said on Tuesday, as they seek to hedge against fickle ties with the US.
The deal is expected to double EU exports to India by 2032 by eliminating or reducing tariffs in 96.6 per cent of traded goods by value, and will lead to savings of €4 billion ($4.75 billion) in duty for European companies, the EU said.
The bloc will cut tariffs on 99.5 per cent of goods traded over seven years, India's trade ministry said in a statement. Tariffs will be cut to zero on Indian marine goods, leather and textile products, chemicals, rubber, base metals and gems and jewellery, it added.
“Yesterday, a big agreement was signed between the European Union and India,” Indian Prime Minister Narendra Modi said earlier.
“People around the world are calling this the mother of all deals. This agreement will bring major opportunities for the 1.4 billion people of India and the millions of people in Europe,” he said.
He added that the agreement represented 25 per cent of global gross domestic product and one third of global trade.
The accord will open up India's vast and highly guarded market, with New Delhi slashing tariffs on cars to 10 per cent over five years from as high as 110 per cent, according to an EU statement. This will benefit European car makers such as Volkswagen, Renault, Mercedes-Benz and BMW.
India is also immediately cutting tariffs on alcoholic drinks such as wine to 75 per cent from 150 per cent, and these will be gradually lowered to 20 per cent. Tariffs on spirits will be reduced to 40 per cent, the EU said.
The deal will also cut tariffs on many EU goods heading to India including machinery, electrical equipment, chemicals and iron and steel, the European bloc said.
“Europe and India are making history today,” European Commission President Ursula von der Leyen said in a post on social media. “This is only the beginning.”
Trade between India and the EU was $136.5 billion in the 2024-2025 fiscal year.
The formal signing of the India-EU deal would take place after legal vetting that is expected to last five to six months, an Indian government official said.
“We expect the deal to be implemented within a year,” the official added. The European Parliament will also have to ratify it.
For India, the tariff cuts with the EU will lead to more exports in labour intensive sectors that will help partly offset the impact of US tariffs, said Ajay Srivastava, a former Indian trade official.
He said the deal will also give an immediate price advantage for EU products in India because of relief from its high tariffs, for instance up to 110 per cent on cars.
The agreement comes days after the EU signed a pivotal pact with the South American bloc Mercosur, following deals last year with Indonesia, Mexico and Switzerland. During the same period, New Delhi finalised pacts with Britain, New Zealand and Oman.
The deals emphasise global efforts to hedge against the US as President Donald Trump's bid to take over Greenland and launch tariff threats against European nations test long-standing alliances among western nations. Mr Trump has imposed a 50 per cent tariff on goods from India and a trade deal between the countries collapsed last year after a breakdown in communication between their governments.
Nations are increasingly willing to “bury the hatchet” given the “atmosphere of uncertainty” around Mr Trump’s policies, said Amitendu Palit, research lead on trade and economics at the Institute of South Asian Studies. “Diversification is absolutely essential,” he added. “That is the name of the game.”
Export boost
The EU-India deal could give India, Asia’s third-largest economy, a competitive edge in the export of labour-intensive goods hit hard by Mr Trump’s tariffs, including apparel and footwear.
More broadly, it could boost the country’s exports to the EU to about $50 billion by 2031, according to a report by Madhavi Arora, lead economist at Emkay Global Financial Services. She singled out pharmaceutical, textiles and chemicals as the sectors likely to benefit from the deal.
For the EU, the agreement would mean access to one of the world’s fastest growing economies. But the deal will not offer as much market access for European goods as the one the EU recently reached with the Mercosur countries – Argentina, Brazil, Uruguay and Paraguay.
“In a world where the transatlantic relationship is fundamentally broken and trusted partners are hard to come by, this is a pretty big win for the EU,” said Garima Mohan, an Indo-Pacific specialist who focuses on EU-India ties at the German Marshall Fund. “It signals the EU’s shift to a more geopolitical, pragmatic stance.”
With reporting from Reuters and Bloomberg
