India and the European Union are poised to sign a major free trade agreement, referred to as the ‘mother of all deals,’ as both economies aim to counter trade uncertainties exacerbated by U.S. tariffs under President Donald Trump. This pact, which has been under negotiation for nearly two decades, is now nearing completion, with European leaders set to attend India’s Republic Day to advance talks.
The deal is expected to be announced as early as January 27 during a high-level summit, following the Republic Day celebrations where European Council President Antonio Luis Santos da Costa and European Commission President Ursula von der Leyen are chief guests. This diplomatic gesture underscores India’s commitment to diversifying its foreign policy and reducing dependence on the U.S., amid an impasse over Washington’s 50% tariffs on Indian goods.
Geopolitical tensions have accelerated the urgency for both sides. President Trump’s recent threats to escalate trade wars with European allies over issues like Greenland have created a volatile environment. As Chietigj Bajpaee of Chatham House notes, this move signals that India is not beholden to the whims of the Trump administration, while the EU seeks to offset its trade reliance on China, which it considers unreliable.
Economically, the agreement is significant. India is the world’s fourth-largest and fastest-growing major economy, on track to cross $4 trillion in GDP this year, overtaking Japan. A free trade zone between India and the EU would create a market of two billion people, accounting for a quarter of global GDP, enhancing trade flows and economic integration.
For India, the FTA would restore lost market access under the EU’s Generalised System of Preferences, which was withdrawn in 2023. According to Ajay Srivastava of the Global Trade Research Initiative, this would lower tariffs on key exports such as garments, pharmaceuticals, steel, and machinery, helping Indian firms absorb shocks from higher U.S. tariffs. India exported about $76 billion to the EU last year, with a trade surplus.
The EU benefits by gaining access to India’s burgeoning market, reducing its economic dependence on China. However, challenges remain, including Europe’s push for better intellectual property protection and tighter patent norms. For India, the EU’s Carbon Border Adjustment Mechanism poses a major hurdle, as it could act as a new border charge on exports, particularly damaging for small and medium-sized industries due to high compliance costs.
Sensitive sectors are being protected in the negotiations. India is expected to safeguard agriculture and dairy, while implementing phased tariff reductions on cars, wine, and spirits, similar to its approach in deals with the UK. This phased strategy allows for geopolitical symbolism while addressing economic substance gradually.
Ultimately, the deal’s success depends on resolving these issues and securing EU parliamentary approval. Analysts like Alex Capri of the National University of Singapore believe it could expedite trade decoupling from unreliable partners, reducing vulnerabilities to tariffs and supply chain weaponization. With political friction with the U.S. intensifying, the pact represents a strategic shift towards more stable and diversified trade alliances.
