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January 27th, 2026 - A watershed moment in India-EU ties when the India-EU free trade agreement (FTA) is finalised, ushering a new era of hope for the Indian taxpayer. A great promise for global trade and geopolitics.
At the 16th India-EU summit, the Honorable Prime Minister of India, Shri Narendra Modi, and the President of the European Commission, H.E. Ms. Ursula von der Leyen, announced the historic milestone of the India-European Union Free Trade Agreement.
Many people are learning about the India-EU FTA for the first time and want to know what it means for India's economy, jobs, businesses, and global status.
This document covers
Free Trade Agreements (FTAs) are arrangements between two or more countries that mainly agree to
Free trade agreements benefit the nation in numerous ways.
The India-EU FTA covers the following areas
While the agreement promises major benefits in terms of exports, investment, and service expansion, it also presents issues relating to compliance and competitiveness.
The following are the advantages and disadvantages of the India-EU FTA for India
| # | Benefits | Challenges |
|---|---|---|
| 1 | Increased Access to European nations as FTA reduces the duties on Indian products | Competitive pressure on Indian MSMEs and auto makers from technologically advanced EU firms |
| 2 | Unlock High value employment opportunities and reinforce India's position as a global hub for talent, innovation, and sustainable economic growth. | High compliance cost due to strict EU standards |
| 3 | Cooperation in Artificial Intelligence, clean technologies, and semiconductors etc supporting India's technological advancement. | Concerns over IPR, patents, and data protection |
| 4 | Expanded market access for services across 144 EU sub-sectors | Continued vulnerability of farmers to global price volatility |
| 5 | Strong support to Make in India and export-oriented manufacturing | There is a need for significant capacity building and skill upgradation |
| 6 | Major boost to labour-intensive sectors like textiles, apparel, leather, gems & jewellery, marine products, handicrafts, engineering goods | Limited flexibility in future policy changes due to binding commitments |
| 7 | Strengthen rural incomes, women's participation, and India's position as a premium, trusted supplier in Europe. | Regulatory complexities in cross-border services trade |
The following are the advantages and disadvantages of the India-EU FTA for European Union
| # | Benefits | Challenges |
|---|---|---|
| 1 | Access to one of the world's fastest- growing large markets (India) | Increased competition from low-cost Indian exports in textiles, garments, leather, and generic pharmaceuticals |
| 2 | Entry into India's services sectors such as banking, insurance, logistics, telecom, education, and professional services | Potential resistance from EU labour unions and environmental groups |
| 3 | Reduced tariffs and improved market access for automobiles, machinery, medical devices, chemicals, luxury goods | Competitive pressure on EU MSMEs and labour - intensive industries |
| 4 | Strengthening EU's role in shaping global trade rules and standards | Political sensitivities within EU member states over trade openness |
| 5 | Predictable and rules-based trade environment with a trusted democratic partner | Slower realization of benefits due to gradual implementation timelines |
The India-EU Foreign Trade Agreement (FTA) also has some important implications for Indian taxpayers.
If you wish to import a Volkswagen car from Europe, the cost before and after the FTA will change dramatically.
| Particulars | Before FTA (Tariff / import duty- 110%) | Post FTA (initial period) (Tariff / import duty-40%) | Post FTA (long term) (Tariff / import duty- 10%) |
|---|---|---|---|
| Ex-factory import value | 20,00,000 | 20,00,000 | 20,00,000 |
| Tariff / import duty | 22,00,000 | 8,00,000 | 2,00,000 |
| Final price | 42,00,000 | 28,00,000 | 22,00,000 |
The India-EU FTA aims to significantly reduce trade barriers between India and EU by lowering the tariffs.
| Category | Current Tariff (Approx) | Expected Tariff |
|---|---|---|
| Textiles and Apparel | 4-12% | 0% (Immediately) |
| Leather, footwear | 10-17% | 0% (Immediately) |
| Marine Products | 20-26% | 0% (Immediately) |
| Gems & Jewellery | 0-4% | 0% (Immediately) |
| Chemicals & Pharmaceuticals | 6%-14% | 0% (Immediately) |
| Machinery | 7.5%-15% | 0% (Phased) |
| Iron and steel | 7.5%-22% | 0% (Phased) |
| Category | Current Tariff (Approx) | Expected Tariff |
|---|---|---|
| Machinery and electrical equipment | Up to 44% | 0% (Phased) |
| Aircraft and spacecraft | Up to 11% | 0% |
| Chemicals | Up to 22% | 0% |
| Motor vehicles (Automobiles) | 110% | 40% (Initially), 10% (Long Term) (Phased) |
| Iron and steel | Up to 22% | 0% |
| Pharmaceuticals | 11% | 0% |
Source(s): www.pib.gov.in, policy.trade.ec.europa.eu
Disclaimer: This article provides an overview and general guidance, not exhaustive for brevity. Please refer Income Tax Act, GST Act, Companies Act and other tax compliance acts, Rules, and Notifications for details.