In the high-stakes game of global trade, the India–EU Free Trade Agreement (FTA), expected to be signed on the 27th of January 2026 during the EU–India Business Summit 2026, is a strategic queen’s move. It links India’s fast-growing economy with the EU’s €22.5 trillion[1] integrated market — bringing together a market of two billion people and around 25% of global GDP. Beyond its symbolic value, the agreement promises to reshape trade architecture, bolster supply chain resilience, and recalibrate strategic alignments across Asia, Europe, and the Atlantic.
A Safer, $130 Billion Trade Corridor Opens New Growth Opportunities for Businesses
For companies, the FTA creates a de-risked corridor between two large, reform-oriented economies. EU–India goods trade already stands at roughly $130 billion[2], yet is well below potential.
For India, deeper EU integration expands exporters’ market access across a large economic bloc, especially against the backdrop of US trade policy volatility. The trade deal will enhance India’s go-to positioning for attracting new manufacturing investments. In fact, multiple analyses, including the Frost Radar™: Economic Development, 2025, have suggested that rising protectionism elsewhere, particularly due to higher US tariffs, can be leveraged to India’s advantage for enhanced inward investment attraction. Combined with India’s large workforce and industrial incentives such as Production-Linked Incentive (PLI) Schemes, the FTA reinforces India’s rising position as a preferred base for manufacturing, R&D, and services exports.
For Europe, India also represents one of the markets to act as a second export growth engine as China decoupling rises and domestic demand stagnates. The FTA also grants the EU an early-mover advantage in Asia, enabling firms to diversify sourcing and build alternative manufacturing bases at a time when supply chain security has become a board-level priority.
Strengthening EU-India Supply Chains Across Pharma, Automotive, and Clean Energy
Pharmaceuticals are the low-hanging fruit. EU tariffs on medicines are already low, but the FTA is expected to simplify regulatory compliance and strengthen intellectual property frameworks, which could make Indian pharma an essential in Europe’s healthcare supply chain. Automotive outcomes could remain a bit more mixed. While India is likely to opt for quotas and phased tariff cuts for finished vehicles, similar to the recently concluded FTA with the UK, expected full tariff removal on auto components would lower production costs and strengthen cross-border manufacturing. EU carmakers like Volkswagen AG and Renault Group are already deeply embedded in India’s production ecosystem; the FTA would reinforce India’s role as an automotive supply chain hotspot.
Clean energy cooperation also stands to get a boost, considering that Europe’s Green Deal and India’s 500-gigawatt renewable target for 2030 create a natural platform for joint leadership in solar, wind, grids, and green hydrogen.
Hence, the FTA would strengthen India’s credibility as a scale alternative, not just a marginal “China+1” beneficiary.
Mega Trade Deal Reinforces India’s Attractiveness for Trade and Supply Chain Pivots
On the supply-chain front, the India–EU FTA is squarely about diversification and resilience. Global trade is increasingly fragmented by trade wars and geopolitical rivalries, and businesses are moving well beyond single-country sourcing and production. India stands to be a major beneficiary of this trend. Take Apple Inc, for instance — already having shifted 7%+ of its iPhone production to India, the company could accelerate producing in India post-FTA, leveraging duty-free access to the EU market. Similarly, European fashion brands like Zara and H&M, currently reliant on Chinese factories, could pivot to India’s textile hubs in Tiruppur and Surat, where manufacturing costs are also 15%–20% lower.
Economic Growth Impacts and Caveats for the EU and India: Agreement would Boost Growth, Inherent Structural Constraints Need to be Eliminated for Achieving Maximum Potential
The FTA will provide sizable growth upsides to the EU. The deal would essentially provide the bloc with long-term incremental growth support in manufacturing, clean tech, defense, and digital services.
India’s ambition to sustain ~8% GDP growth under its Viksit Bharat 2047 vision hinges on export expansion, manufacturing scale-up, and technology absorption. The FTA directly supports all three. That said, the deal is not sufficient on its own. India’s growth trajectory will continue to depend on domestic reforms, infrastructure execution, and, critically, a stable trade relationship with the US.
EU–India FTA could Accelerate Momentum Toward a US–India Trade Deal
Washington cannot afford to ignore this deal. Against the backdrop of rising US–EU frictions and especially because of the recent Greenland dispute, the India–EU FTA signals Europe’s intent to broaden its economic partnerships and hedge against policy volatility. The EU–India deal could very well incentivize the US to double down on its own India trade strategy, perhaps fast-tracking a bilateral trade deal in 2026.
For India as well, a US–India trade deal is extremely vital. India’s trade exposure remains heavily skewed toward the US, with a $45.8 billion[3] goods surplus with the US in 2024, versus $25.8 billion[4] with the EU. The FTA can therefore partially cushion, but not fully offset, the punitive US tariff shocks.
The Bottom Line
The India–EU FTA, complemented by a defense and security cooperation framework, may not rewrite global trade and growth overnight, but it meaningfully reshapes the movement of trade, investment, and supply chains in a new era of globalization.
Manufacturers should reassess footprint strategy—particularly in autos, electronics, defense, and clean energy—as lower tariffs on components, streamlined rules of origin, and greater regulatory alignment reduce the cost of producing in India. Exporters and services firms should move early, in the window following the deal’s political conclusion on the 27th and ahead of formal ratification, to secure market access and partnerships before competitive intensity rises.
Net net, firms that wait for full clarity risk entering late. Those that act now will shape standards, secure partners, and capture long-term advantage.
To know more, or to connect with our growth expert, write to Nimisha Iyer at [email protected]
