Deal eliminates tariffs on over 90% of goods traded between regions, creating large free-trade zone.
06 Feb 2026 | 280 Views | By Shruti Shiraguppi
India and the European Union finalized a free trade agreement in January 2026 after nearly 20 years of negotiations, eliminating tariffs on over 90% of goods exchanged between the two regions. The agreement establishes a large free-trade zone and represents a significant development for Indian sectors currently facing EU import ...
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India and the European Union finalized a free trade agreement in January 2026 after nearly 20 years of negotiations, eliminating tariffs on over 90% of goods exchanged between the two regions. The agreement establishes a large free-trade zone and represents a significant development for Indian sectors currently facing EU import duties ranging from 4% to 26%.
The EU has granted India preferential zero tariff access on 97% of its tariff lines, covering 99.5% of India's export value. About 70% of EU tariff lines, covering approximately 90% of India's exports, will see immediate duty elimination upon enforcement. Another 20% of tariff lines, covering around 3% of exports, will become zero duty over a three-to-five-year period.
India has offered substantial market access by agreeing to eliminate or reduce tariffs on 92% of its tariff lines, representing roughly 97.5% of EU export value. Nearly half of India's tariff lines will go to zero duty immediately for imports from the EU, while roughly 40% more will be phased to zero over five, seven, or 10 years.
Merchandise trade between India and the EU increased at a compound annual growth rate of 7% between fiscal year 2016 and fiscal year 2025, with imports from the EU rising at a CAGR of 5% and exports to the EU expanding at a CAGR of 9%. The EU's share in total Indian merchandise exports increased to 17% in fiscal year 2025 from 14% in fiscal year 2016, resulting in a trade surplus for India since fiscal year 2021.
The textiles sector is expected to benefit significantly from the agreement. India's apparel export was estimated at over USD 16 billion for calendar year 2025, with nearly a third to the United States followed by the EU at around 23%. The deal places Indian exports at par with competing nations by bringing duty rates to nil.
For chemicals, the EU accounts for nearly 25% of India's organic chemical exports in fiscal year 2025 and represents about 11% of total agrochemical exports. The removal of tariffs is expected to improve competitiveness against Chinese supplies.
In pharmaceuticals, the EU accounted for around 12% of India's pharmaceutical exports in fiscal year 2025. The removal of EU import tariffs, currently up to 11%, will increase competitiveness in the EU market. The EU accounted for the largest share of pharmaceutical imports for India at 46% in fiscal year 2025.
For iron and steel, the share of EU countries in total exports of finished steel and semis for India has varied between 25% and 45% in the last four fiscal years. However, the Carbon Border Adjustment Mechanism currently lies outside the scope of the deal.
The EU is one of the key markets for Indian petroleum product exports, accounting for 23% in fiscal year 2025. The agreement eliminates tariffs on Indian petroleum exports, though the EU's 18th sanctions package will ban imports of fuels refined from Russian crude.
In the automotive sector, duties on EU-made vehicles are expected to drop from as high as 110% to 10% over time for a fixed quota per annum above an import price of Euro 15,000 per vehicle. The tariff cuts are likely to benefit premium internal combustion engine vehicles, with the small and mid-segment cars remaining largely unaffected.
The deal grants preferential zero duty access to Indian agricultural and processed food products including tea, coffee, spices, herbs, dried onions, fresh fruits and vegetables. India has safeguarded sensitive sectors including dairy, cereals, poultry, soymeal, and certain fruits and vegetables.
For leather and footwear, the elimination of tariffs from up to 17% to zero across all tariff lines will help level the playing field. The EU's share in India's leather products exports was 45% and footwear exports was 44% in fiscal year 2025.
The furniture sector will benefit from lower duties of up to 10.5%, providing enhanced access and boosting competitiveness of Indian wooden, bamboo, and handcrafted furniture.
Marine products will receive preferential access covering 100% of trade value by reducing tariffs of up to 26%. The EU's share in fish and aquatic invertebrates exports from India was 15% in fiscal year 2025.
Aditi Nayar, Chief Economist and Head – Research and Outreach at ICRA, assessed that with effective implementation, bilateral trade is expected to rise well beyond the current USD 137 billion and spur investment, innovation, job creation, and long-term export growth.