India–EU Trade Deal Gains Urgency as Geopolitics and Climate Rules Reshape Global Commerce

For more than a decade, the India–European Union Free Trade Agreement remained stuck in negotiations, discussed often, never concluded. Today, that stalemate is ending. On January 21, 2026, European Commission President Ursula von der Leyen confirmed that India and the EU are “on the cusp” of finalising the trade pact with the formal signing scheduled for January 27, 2026, in New Delhi during the 16th India–EU Summit.

This is not just another trade agreement. Its renewed urgency reflects a deeper shift in global commerce where geopolitics, climate regulation and supply-chain security are reshaping how countries trade, invest and align. For India, the deal arrives at a moment when global fragmentation is rising and economic partnerships are becoming strategic assets rather than transactional arrangements.

From Stalemate to Momentum: How the Deal Came Back to Life

India–EU trade talks were originally launched in 2007 but stalled by 2013, mainly over disagreements on agriculture, tariffs on automobiles and alcohol, intellectual property and data protection. For nearly a decade, the agreement remained dormant.

The breakthrough came in June 2022, when negotiations were formally relaunched amid a rapidly changing global backdrop. Since then, over 14 rounds of negotiations have taken place, with the most decisive progress occurring through 2025.

Two developments proved critical. First, Ursula von der Leyen’s visit to India in February 2025 gave political momentum to the talks, reframing the agreement as a strategic partnership rather than a narrow trade deal. Second, India’s Commerce Minister Piyush Goyal’s visit to Brussels in January 2026 helped close remaining gaps, especially as global trade uncertainty intensified due to shifting US trade policies.

Importantly, both sides agreed to exclude agriculture, historically the most contentious issue, allowing negotiations to focus on goods, services, investments and geographical indications, areas where mutual gains are more achievable.

Why the Deal Matters More Now Than Ever

The timing of this agreement is not accidental. It reflects a convergence of three powerful forces reshaping global trade.

Geopolitics and the China+1 Strategy: Europe is actively diversifying its supply chains away from excessive dependence on China. The pandemic, the Russia–Ukraine war and growing US–China tensions have exposed vulnerabilities in global sourcing.

India is emerging as a natural China+1 alternative offering scale, demographic advantage, democratic governance and improving infrastructure. A comprehensive FTA gives European companies greater confidence to invest, manufacture and source from India, while offering India deeper integration into global value chains.

Climate Rules Are Becoming Trade Barriers: The EU’s Carbon Border Adjustment Mechanism (CBAM) is fundamentally changing how trade works. Under CBAM, carbon-intensive imports such as steel, cement, aluminium and chemicals will face additional levies unless exporters can demonstrate low carbon intensity.

For India, this is both a challenge and an opportunity. While CBAM raises compliance costs, an FTA provides a structured platform to negotiate transition pathways, recognition of India’s decarbonisation efforts and smoother adaptation for exporters. Without such agreements, climate rules risk becoming non-tariff barriers.

Fragmentation of Global Trade: The world is moving away from a single, rules-based global trade system toward regional and strategic blocs. Trade agreements now serve as tools of economic security. The India–EU deal positions India firmly within a trusted economic network at a time when neutrality is becoming harder to sustain.

What the Agreement Is Expected to Cover

The proposed FTA focuses on non-agricultural trade, making it more pragmatic and execution-oriented.

For India, the key gains include:

• Tariff reductions for exports in textiles, apparel, pharmaceuticals, engineering goods and chemicals
• Improved market access for IT services, digital services and professionals
• Stronger investment flows into manufacturing, renewables and infrastructure
• Greater acceptance of Indian geographical indications (GIs) in European markets

For the EU, benefits include:

• Easier access to India’s large consumer market
• Investment opportunities in clean energy, mobility and advanced manufacturing
• Reduced regulatory friction for European companies operating in India

Crucially, agriculture has been excluded, removing the single biggest obstacle that derailed earlier negotiations.

How This Fits Into India’s Broader Trade Strategy

The India–EU FTA does not stand alone. It complements India’s 2024 EFTA trade agreement with Switzerland, Norway, Iceland and Liechtenstein, which came into effect in October 2025 and eliminated duties on 80–85% of EFTA goods.

Together, these agreements signal a clear strategic shift. India is selectively opening trade with high-income, technology-driven economies while retaining policy flexibility in sensitive domestic sectors. This approach balances growth ambitions with economic sovereignty.

Challenges That Remain

Despite the momentum, the deal is not without friction points. Data protection norms, digital taxation, CBAM compliance and EU demands on intellectual property will continue to test implementation. Similarly, the Indian industry remains cautious about competition from European manufacturers.

However, the fact that both sides are pushing toward closure suggests a shared recognition: the cost of not having a deal is now higher than the compromises required to sign one.

What This Means for India’s Economy and Markets

Over the medium term, the India–EU FTA could:

• Boost exports and reduce dependency on a narrow set of markets
• Encourage foreign direct investment into manufacturing and green technologies
• Support India’s ambition to become a global manufacturing and services hub
• Help Indian companies adapt to climate-linked trade rules proactively

From an investor perspective, sectors such as pharmaceuticals, textiles, IT services, speciality chemicals, engineering goods and renewables stand to benefit most from improved access and policy certainty.

Conclusion: Trade as Strategy, Not Just Commerce

The India–EU Free Trade Agreement marks a turning point in how India engages with the global economy. It reflects a shift from reactive trade policy to proactive economic diplomacy where trade deals are instruments of resilience, not just growth.

In a world where geopolitics increasingly shapes economics, this agreement is less about tariffs and more about positioning. For India, it reinforces credibility, expands strategic optionality and anchors the country more firmly in the evolving architecture of global commerce. If signed as planned on January 27, 2026, the India–EU FTA will not just reopen markets, it will redraw the map of India’s global economic partnerships.

Disclaimer: The article is for informational purposes only and not investment advice.