India's new free-trade agreement with the European Union is being cast by economists as a major shift in the country's trade approach, offering near-universal preferential access to a large market at a moment when global supply chains are being adjusted. The deal provides preferential access on 97% of EU tariff lines and covers 99.5% of bilateral trade value, with a significant share of exports eligible for immediate elimination of duties, ING Economics said.
The breadth of the package has prompted some analysts to dub it the "mother of all deals," a phrase that highlights both its scale and its potential effects on India's export competitiveness. The agreement arrives as Asian economies intensify efforts to diversify away from the United States - a trend that ING said helped underpin regional export gains last year.
ING described the pact as reinforcing that diversification, while also reflecting what the bank called the EU's "patient, pragmatic approach" to addressing India's sensitivities on market access. The accord appears structured to expand market opportunities without forcing rapid changes to domestic policy on politically fraught sectors.
Trade flows between India and its two largest export partners illustrate the potential scope of any pivot. The EU already accounts for about 17% of India's exports, narrowly trailing the United States at 21%. The EU share has climbed by roughly 3 percentage points since the pandemic. ING noted that India's export composition to both trading partners is broadly similar, although petroleum products now carry a larger weight in shipments to Europe. The bank added that, if elevated U.S. tariffs on Indian goods persist, the agreement permits India to shift more sales toward the EU "without overhauling its export mix."
More than 60% of India's merchandise shipments to the EU are concentrated in a handful of sectors, including petroleum products, pharmaceuticals, electronics, minerals, auto components and textiles. The deal's tariff eliminations across many product lines are expected to particularly aid labour-intensive categories such as marine products, leather and footwear, garments, handicrafts, gems and jewellery, plastics and toys.
Collectively, ING said, these labour-intensive industries represent close to 2% of India's GDP in exports and have been among the most affected by trade barriers imposed by the United States. "These sectors are highly labour-intensive and low-value-added, exactly where India competes directly with China, Bangladesh, and Vietnam," the ING note said, adding that reduced EU barriers could strengthen job creation in some of India's largest employment-generating industries.
At the same time, the pact preserves protections in politically sensitive areas. India retained shields for agriculture and dairy while accepting tariff reductions in categories such as food, beverages and automobiles - an arrangement ING characterised as allowing market expansion "without compromising domestic interests."
Beyond the immediate trade implications, the agreement could alter the pattern of investment into India. The EU currently accounts for roughly 15% of India's foreign direct investment, with leading investor countries including the Netherlands, Germany, Belgium and France. Historically, most EU capital has flowed into services, notably IT and software.
ING suggested that deeper economic integration with the EU could revive FDI momentum in manufacturing sectors such as automobiles, chemicals and construction at a time when India's net FDI inflows have softened. Services remain central to the arrangement: India already exports services to the EU worth about 1% of GDP and runs a surplus of roughly 0.2% of GDP in services trade.
The agreement contains what ING described as "broader and deeper" commitments across 144 services subsectors, spanning IT, professional services, education and business services. These commitments aim to create a more predictable operating environment for Indian providers seeking to scale in European markets.
"The agreement marks a significant milestone for both India's trade diversification ambitions and Asia's evolving export landscape," the ING note said, framing the pact as consequential for both trade patterns and regional economic positioning.
Implications for markets and sectors
- Export-oriented manufacturing and labour-intensive industries such as textiles, footwear and gems stand to gain from lower EU tariffs.
- Petroleum products, pharmaceuticals, electronics and auto components - which together account for a substantial share of exports to the EU - are central to the near-term trade impact.
- Services firms, particularly in IT and professional services, could benefit from expanded and more predictable market access across a large range of subsectors.
- Investment flows from EU countries may shift toward manufacturing segments if deeper integration translates into revived confidence among corporate investors.
What remains uncertain
- The extent to which high U.S. tariffs on certain Indian goods persist will influence how quickly exporters reorient toward Europe.
- How effectively tariff reductions translate into expanded market share for India's labour-intensive exports versus regional rivals such as China, Bangladesh and Vietnam is unclear.
- The pace and scale of any revival in EU-origin manufacturing FDI will depend on investor responses to the new terms amid broader trends in India's net FDI inflows.