India and the European Union (EU) have concluded negotiations for a mutually beneficial free trade agreement (FTA) that would leverage a combined market of 2 billion people, accounting for a quarter of global GDP. It is termed the mother of all deals as it represents the partnership of the world’s fastest-growing economy and largest trading bloc.
As India is not part of the Regional Comprehensive Economic Partnership or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, this is the biggest of the eight deals it has negotiated since the ruling dispensation assumed office in 2014.
Although negotiations began nearly two decades ago, there was a sense of urgency to cross the finishing line as the rules-based trading order is being undermined by the tariff disruption of US President Donald Trump and the need for India and the EU to reduce reliance on the US and China.
India’s exports to the EU are $76 billion—accounting for 17% of its total exports—which can further rise by $50 billion by 2031 as the FTA sends a strong message to a rapidly fracturing trading world that another way is possible.
Timeline and Ratification
The formal signing of the FTA, however, will take place only after the legal scrubbing of the text is completed within the next five to six months. Indications are that it will come into force in early 2027, subject to its ratification.
Indications are that the agreement is mutually beneficial as it will lower costs and expand trade as India and the EU operate on different rungs of the value chain, according to the Global Trade Research Initiative. India is focused on labour-intensive and downstream production, while the EU supplies capital goods and industrial inputs.
Thanks to this structural complementarity, India will benefit from zero-duty access for its labour-intensive exports of textiles and apparel, leather, footwear, and gems and jewellery when this agreement kicks in. The EU gains from lower tariffs on its cars and alcoholic beverages.
In autos, for instance, tariffs will gradually go down from 110% to 10% with a quota of 250,000 vehicles a year. High tariffs on machinery, chemicals, and pharmaceuticals will also be mostly eliminated. However, there will be concerns regarding issues like the EU’s carbon tax.
Advanced Service Cooperation
Beyond the mutually beneficial gains in goods trade, this agreement also has major implications for services through a landmark MoU on cooperation in mobility.
While India has secured greater access through a more liberal regime for short-term and business travel to the EU, the FTA also grants EU companies privileged access to the Indian market in financial and maritime services.
The EU, in fact, considers this deal as having the most ambitious commitments in financial services by India than in any of its trade agreements.
The 9th high-level dialogue on migration and mobility last November proposed a pilot European legal gateway office in India for information and communication technology (ICT) professionals and explored comprehensive mobility frameworks for young professionals.
Both the EU and India will provide mobility commitments to each other for intra-corporate transferees and business visitors along with entry and working rights for dependents and family members of ICT professionals.
For such reasons, the mother of all deals presages an uptick in bilateral goods and services trade, which will be catalysed if an investment protection agreement is also concluded at the earliest to facilitate two-way flows of investments.