The long-awaited Free Trade Agreement (FTA) between India and the European Union is expected to be signed by the end of 2026, according to European Commission President Ursula von der Leyen.The agreement is expected to significantly deepen economic ties between the two partners and become India’s largest trade pact in terms of both economic scale and regulatory coverage.
The EU expects the deal to nearly double its goods exports to India by 2032 by eliminating or reducing tariffs on 96.6% of the value of European goods exports. The agreement is projected to save European exporters around €4 billion annually in duties. Tariffs on several agri-food products will be reduced or eliminated, while duties on European wines are set to fall from 150% initially to 75%, with eventual reductions to as low as 20%. The pact will also provide greater access for European companies to India’s services market.
Carbon Tax Concerns AddressedOne of the key sticking points during negotiations has been the EU’s Carbon Border Adjustment Mechanism (CBAM), often referred to as a carbon tax. India’s Commerce Ministry has said the country’s long-term interests will remain protected despite the absence of a specific carve-out from CBAM. Any flexibility offered by the EU to other countries under the mechanism would also be extended to India, ensuring equal treatment.
A technical working group will be established to facilitate accreditation of Indian carbon-footprint verifiers, while any future carbon pricing or trading framework introduced by India will be factored into CBAM calculations. The EU has also agreed to provide technical assistance to help reduce emissions in India’s industrial sector. Officials indicated that a joint statement on decarbonisation is likely alongside the trade pact.Wide-Ranging Trade PactThe proposed FTA currently spans 21 chapters and covers 23 areas, including goods, services, intellectual property rights, sustainability, sanitary and phytosanitary measures, technical barriers to trade, MSMEs, anti-fraud measures, subsidies and rules of origin. The Commerce Ministry noted that chapters on government procurement, energy and critical minerals are not currently part of the agreement.Addressing concerns about potential dumping of goods, particularly from China, the ministry said both sides have incorporated safeguards and trade-remedy mechanisms into the pact. The agreement also includes provisions related to post-study work opportunities for students, with no cap on student visas under the arrangement.Investment and Economic SignificanceNegotiations on a separate Bilateral Investment Treaty (BIT) and geographical indication (GI) protections are also progressing. Investment liberalisation in certain non-services sectors will continue to be negotiated for two years after the FTA comes into force.The EU remains one of India’s largest investment partners. Between April 2000 and September 2024, cumulative foreign direct investment inflows from the EU into India stood at around $117.4 billion, accounting for over 16.5% of total FDI equity inflows. More than 6,000 European companies currently operate in India, while Indian investments into the EU totalled about $40 billion between 2000 and 2024.
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