Prime Minister Narendra Modi and European Commission President Ursula von der Leyen on Tuesday announced the conclusion of negotiations on the India-EU FTA, nearly 19 years after talks first began. Once signed and ratified, the agreement is expected to come into force by 2027 and will cover economies that together account for about 25% of global GDP and nearly one-third of global trade.
While tariff reductions on goods have drawn attention, business leaders say the deeper impact of the deal lies in the non-tariff and structural provisions that strengthen economic integration between India and Europe.
CII President Rajiv Memani said the agreement creates a much wider platform for engagement beyond trade in goods. “Once you enter into an agreement like this, it leads not only to higher trade, but also to greater flow of investments, services and enhanced mobility. From a services, technology and investment perspective, this agreement is massive,” he said.
A key highlight is the focus on mobility of professionals and knowledge workers. Memani said commitments have been made on intra-corporate transfers, including for dependents, along with discussions on post-study work options and social security arrangements. The pact is also expected to provide predictable access across 144 services sectors, offering a significant boost to Indian IT, consulting, healthcare and professional services firms operating in Europe.
The agreement also opens doors for deeper research and innovation collaboration. India’s participation in the European Union’s €100-billion Horizon research and innovation programme, industry leaders say, could strengthen partnerships in advanced technology, sustainability and applied research, areas where Europe has long-standing expertise.
Beyond services and talent, investments are expected to accelerate even before the FTA becomes operational. CII President-Designate and Tata Chemicals MD & CEO R Mukundan said companies typically begin planning investments well ahead of implementation. “From commitment to ground-breaking can take up to 24 months. With every FTA, we’ve seen trade, services and investments accelerate, and this will be no different,” he said, adding that Europe’s R&D-led solutions are particularly well suited to Indian conditions.
Nearly 6,000 European companies already operate in India, and industry leaders expect that number to rise as global companies diversify supply chains and look for stable, long-term partners. The India-EU FTA, they say, reinforces trust and predictability at a time when geopolitical considerations are reshaping global capital flows.
From a macro perspective, the agreement significantly expands India’s access to global markets. Memani noted that the EU alone represents an economy of around $20 trillion. When combined with India’s other recent trade pacts with the UK and the European Free Trade Association, India now has preferential access to markets covering close to $45 trillion in GDP.
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Piruz Khambatta, Chairman of the CII National Committee on Taxation, said the deal stands out for getting the fundamentals right. “This is the right FTA. Services are included, GI tags will be protected, and there will be time-bound dispute resolution mechanisms. That makes it very different from earlier agreements and gives businesses confidence,” he said.
Industry leaders also stressed that the FTA’s impact should be seen through the lens of overall economic growth rather than narrow tariff changes. As demand strengthens and incomes rise, the agreement is expected to have a multiplier effect across sectors, encouraging consumption, investment and innovation.
Taken together, the focus on services, mobility, investments and market access positions the India-EU FTA as more than a trade deal. For India, it marks a strategic step towards deeper integration with advanced economies, greater participation in global value chains and access to some of the world’s largest and most affluent markets.
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Below is the excerpt of the discussion.
Q: It’s been 19 years in the making. As long as I’ve pretty much been reporting, we’ve been talking about the possibility of this deal going through, and at least the talks have now concluded. We still have to wait a bit longer for it to be operationalised. Rajiv Memani, the biggest impact for India Inc — which are the sectors that you believe stand to benefit the most?
Memani: Firstly, I think we must compliment the governments of both the EU and India. I know it’s taken a long time, but we all know that the real acceleration happened in the last six months, when both sides really got onto it and put every bit of energy behind it, and also ensured that politically sensitive issues were handled carefully while trying to create a win-win solution for both sides.
Overall, it’s very positive, both from an Indian standpoint and from an EU standpoint. Sectorally, I would say all the labour-intensive sectors will probably benefit the most, including engineering and auto components. Whether you look at textiles, leather, gems and jewellery, chemicals, auto components or engineering, all of them will benefit significantly.
EU’s imports are almost $3 trillion, and India’s share is somewhere between 2% and 3%. If we can move that share from 3% to 5% or 6%, the gain is very significant. In many products, duties come down from 12% to 0%, 8% to 0% or 4% to 0%, which is hugely beneficial.
As we’ve seen in almost all trade deals, once you enter into an agreement, it creates a much wider platform between economies. That leads not only to higher trade, but also to new areas of engagement, greater flow of investments, greater flow of services, and enhanced mobility. Overall, this is very positive.
Q: You talked about mobility, and I was coming to that, because an important aspect of this agreement is people mobility — the export of knowledge workers from India to the EU. But Anjali, a large part of this deal has also focused on auto, which has been one of the constraints holding it back over the last 19 years. India will open up its market and cut duties quite significantly for EU automakers. For the component industry as well, the EU market — a win-win?
Singh: Firstly, my congratulations as well for this historic deal. It is definitely going to propel India towards our mission of Make in India. It really shows trust in the Indian economy going forward. MSMEs, being the backbone of our industry, will see a plethora of opportunities opening up. This will drive huge potential for both the automotive and auto component industries, bringing together innovation and possibilities on both sides.
Q: Deepak Shetty, what does it mean for companies in capital goods, auto components, infrastructure, and other sectors that will now come into the zero-tariff bracket — gems and jewellery, leather, textiles, apparel, footwear, toys? On balance, what is the biggest impact?
Shetty: First of all, I would like to congratulate the Honourable Prime Minister and the Honourable Commerce Minister on this historic deal, rightly called the mother of all deals. If you look at India-EU trade in 2024, out of nearly $135 billion, exports from India were around $79 billion. Of this, $30 billion was services, and the rest manufacturing.
Even within manufacturing exports, excluding petroleum and diamonds, key items include parts and accessories, smartphones, iron and non-alloy steel products, including rubber tyres. This creates a great opportunity, especially for MSMEs, not just from a cost perspective but from value addition.
Europe’s manufacturing strength, particularly Germany’s Mittelstand model, offers valuable lessons. With PLI schemes and the National Manufacturing Mission, Indian companies can leverage this opportunity. Capital goods companies importing machinery from Europe will benefit. There are already nearly 6,000 European companies operating in India, and more investment is likely, especially given geopolitical supply chain diversification. This agreement positions India as a reliable supply chain partner for all 27 EU countries.
Q: Mr Mukundan, what do you see as the medium- to long-term impact of this agreement?
Mukundan: Firstly, let me also compliment the teams on both sides for this historic deal. There are three or four immediate benefits. One is technology — Europe has a lot to offer in scalable and sustainable solutions. Second is market access — European companies gain access to a large Indian market. Third is collaboration with small and medium family enterprises, which will find scale opportunities in India.
India gains design, technology, and market access for labour-intensive sectors. This partnership is built on strong historical ties, with many European companies having been present in India for decades. Time zone proximity also helps collaboration. Using India and the EU as bases, other markets like Mercosur and Africa can be explored together.
Q: Piruz Khambatta, duty cuts on wine, olive oil, confectionery — and broader market opening. Your take?
Khambatta: The real good news is not alcohol becoming cheaper, but that this is the right FTA. Earlier FTAs were not synergistic. Today, Europe is opening up to Indian manufacturing — leather, chemicals, food processing. I’m currently at Gulfood, and it’s not Gulf food, it’s India food.
This is a real game-changer for Make in India. GI tags will be protected on both sides — their Champagne, our Basmati. There will also be time-bound dispute resolution mechanisms. Services are included. This can be a model for future FTAs.
Q: Rajiv Memani, on knowledge mobility — students, professionals, doctors — how important is this aspect?
Memani: From a mobility standpoint, commitments have been made for intra-corporate transfers and dependents. There are discussions on post-study work options, social security agreements, and predictable access across 144 services sectors. India’s participation in the EU’s €100 billion Horizon research and innovation fund is also significant.
From services, manufacturing, technology and investment perspectives, this agreement is massive. In GDP terms alone, the EU is around $20 trillion. Combined with other FTAs, India now has access to markets covering nearly $45 trillion in GDP.
Q: Mr Mukundan, on investments — do you expect engagement to accelerate even before the agreement is operationalised?
Mukundan: Absolutely. Investments take time — from commitment to ground-breaking can take up to 24 months. Companies will start planning immediately. We’ve seen this with every FTA — trade, services and investments all accelerate. For the EU, the R&D and technology relationship will be a key anchor, with solutions well-suited to Indian conditions.
Q: Santosh Iyer of Mercedes-Benz India, what does this mean for EU automakers, especially with CKD duty reductions?
Iyer: The Prime Minister spoke about a “double engine” between India and the EU driving growth. For us, CKD manufacturing has been important, and reductions will help. It also helps mitigate exchange rate depreciation. We are now waiting for timelines, hopefully by 2027, if not 2028.
Q: So Santosh, given the rupee depreciation and all of that, how much cheaper are cars likely to get here in India with the tariff reduction? More importantly, what can we expect now by way of portfolio enhancement? You’re already making a large part of what you sell in India here in India. So what does this lead to in terms of portfolio enhancement for the auto sector?
Iyer: This is a misconception that prices are going to come down now, because let me explain – 90% of the cars we sell in India are already at a 15% duty when you talk about CKD parts and locally produced cars. Yes, you can say it will now come down to around 8.5%, so there is a chance of a 7–8% reduction. But as I said, largely this will be mitigated by exchange rate changes.
We have been increasing prices by 2% quarter-on-quarter. Last year, we increased prices by 6%. Already from the 1st of January, we have increased by 2%. So maybe price increases can stop after this one, and maybe with this coming in, it should help us mitigate to some extent. But a reduction in prices — we don’t see that in the near future.
On the other side, when you talk about CBUs, that is where the biggest change is. From 110%, it comes down to 40%, and then gradually moves down to 10%. At some point, this helps us get more cars. Today, cars like the G-Wagon — we don’t get allocations because we were not adding the 110% duty and selling them in India.
A lot of people think we take the ex-Germany price, add 110%, add 40% GST, and sell. No, we were already subsuming a lot into our margins to make it competitive here. So once that improves, maybe we get more cars and more variety of cars.
Also remember, EVs are out. And right now, one of the biggest product offensives in Europe is EVs. EVs are outside the FTA, and that will continue the way it is.
Q: Santosh, one of the concerns is that with tariff reductions coming in, will companies be incentivised to add capacity in India — to make more in India? They’re already making in India, but will they add capacity, especially in sectors like auto, where the EU has sufficient capacity and is probably sitting on excess capacity? Let me start with you.
Iyer: Firstly, this is not a capacity topic. Both the EU and India have capacity. For Mercedes-Benz, we have a plant with an investment of ₹3,000 crore. We can make 20,000 cars, going up to 40,000 cars. Capacity was never an issue. It’s about demand.
The biggest impact of the FTA would be the generation of demand. As the economy grows, trade grows. There is a trickle-down effect that we see in our business as well. Over the last 10 years, we’ve seen that with GDP and per capita GDP rising.
We sold 2 lakh cars till date, and 50,000 cars in the last three years. That shows the momentum based on per capita GDP growth. This FTA should not be looked at purely from a tariff reduction perspective. It should be viewed from the perspective of making the economy stronger, which will drive consumption and, in turn, increase manufacturing investments.
Watch accompanying video for entire discussion.