India’s Prime Minister Narendra Modi (C) poses for a photograph with European Commission President Ursula von der Leyen (R) and European Council President Antonio Costa in New Delhi, India, on January 27, 2026.
Sajjad Hussain | Afp | Getty Images
India and the European Union have finalized a trade deal that would remove or reduce tariffs on more than 90% of goods traded between the two.
The free trade agreement would see India reduce tariffs on European automobile and agricultural products, while the EU would do the same for Indian textiles, leather, marine products and gems and jewelry.
Many of these Indian exports have been affected by the U.S. imposing 50% tariffs.
“We have created a free trade zone of 2 billion people, with both sides set to gain economically,” said European Commission President Ursula von der Leyen. She added that the deal sends “a signal to the world that rules-based cooperation still delivers great outcomes”.
The “historic” deal comes at a time when New Delhi is facing the brunt of U.S. tariffs and is looking at alternative markets for its exports. The EU’s long-standing trade ties with the U.S., its largest trading partner, have been tested amid President Donald Trump’s push to annex Greenland.
India’s Commerce and Industry Minister Piyush Goyal said in a press conference on Tuesday that he expected the deal would come into force in 2026.
India is the EU’s ninth-largest trading partner, accounting for 2.4% of the bloc’s total trade in goods in 2024, far behind major partners like the U.S. (17.3%), China (14.6%), or the U.K. (10.1%). But the EU is one of India’s largest trading partners, rivaling the U.S. and China.
‘The mother of all deals’
Von der Leyen called it the “mother of all deals.”
The deal would reduce India’s tariffs on European products by around 4 billion euros ($4.7 billion) a year, the European Commission said in a release.
The deal, which the EU expects will help it double its exports to India by 2032, will reduce tariffs on over 90% of European exports to India, such as autos, machinery, agri-food products, chemicals, and aircraft.
“India will grant the EU tariff reductions that none of its other trading partners have received, dramatically improving market access for EU exports,” the European Commission said.
A freight train carrying cargo containers rides along a railway track in Ajmer on August 26, 2025.
Himanshu Sharma | Afp | Getty Images
New Delhi has defied expectations of experts by offering to ease tariffs on sectors such as automotive and agriculture, which are particularly sensitive to the levies.
India plans to reduce tariffs on European cars “gradually” from 110% to 10% and abolish duties on car parts after five to ten years. Some major European automobile companies in India include Renault, Volkswagen, BMW, and Mercedes.
New Delhi has also nearly eliminated tariffs of up to 44% on machinery, 22% on chemicals and 11% on pharmaceuticals.
The deal has also reduced or removed high tariffs on agricultural products exported from Europe such as wine and olive oil. It also keeps European agricultural sectors beef, chicken meat, rice and sugar protected from imports from India.
“Under this agreement, European wines, spirits, beers, olive oil, confectionary, and other products will enjoy preferential access to the rapidly growing Indian market,” said Christophe Hansen, EU commissioner for agriculture and food.
Indian auto stocks hit
In India, shares of major carmakers and alcoholic beverage companies plunged on the news of the deal.
Shares of Japanese carmaker Maruti Suzuki ended 1.5% down, while those of Korean company Hyundai Motor India closed 3.6% lower. Indian automotive companies Tata Motors and Mahindra & Mahindra ended 1.3% and 4.2% lower, respectively.
The Indian government has said the deal will give Indian consumers access to high-tech automobiles and greater competition.
“The reciprocal market access in EU market will also open up opportunities for India made automobiles to access the EU market,” it said.
Similarly, shares of India-based alcoholic beverage companies also fell. Shares of wine maker Sula Vineyards fell 4.1% while Heineken N.V.-owned United Breweries and Diageo-owned United Spirits fell over 2%.
The trade deal would lift levies on Indian sectors that have been hit by the 50% U.S. tariffs and provide New Delhi with “preferential access to the European markets” for more than 90% of its traded goods.
Textiles, apparel, marine, leather, footwear, chemicals, plastics, sports goods, toys, gems, and jewelry will incur zero duty once the free trade agreement comes into force, India’s commerce ministry said in a statement accompanying the announcement.
These goods from these “key labor-intensive sectors” account for $33 billion in exports. Before the deal, the EU tariffed them at rates of between 4% to 26%.
“This should boost India’s export competitiveness in these sectors, which are currently under strain due to higher US tariffs,” said Sonal Varma, chief economist for India and Asia ex-Japan, at Nomura.
Job creation in India
The EU-India trade deal could create six or seven million jobs in the textile sector alone, Goyal told Tuesday’s press conference, adding that the sector was the second-biggest employer in India after agriculture.
India and the EU will put in place a framework to allow for temporary entry and stay for professionals, including business visitors, intra-corporate transferees, contractual service suppliers, and independent professionals.
India’s IT service sector, professional services, and education services are “well-positioned” to benefit from the mobility provisions, Nomura’s Varma said.
In financial year 2025, India’s bilateral trade in goods with the EU stood at 11.5 trillion rupees, or $136.54 billion), according to a release by India’s commerce ministry. New Delhi’s exports to Europe were $75.85 billion and imports were $60.68 billion, it said.
