Within the span of a week, India has agreed a landmark trade deal with the EU and paved the way for a second with the US.
In response to US president Donald Trump’s repeated disruption of global trade arrangements, as well as China’s growing influence, the India–European Union Free Trade Agreement signals a strategic realignment to seek alternative markets and diversification to cushion economies against the impact of sudden policy swings. In the making for nearly two decades, the agreement brings the 27 EU states and the Indian markets – representing two billion people and 25% of global GDP – closer. Signed on 27 January, the agreement is the largest ever concluded by either the EU or India.
‘We delivered the mother of all deals’, said European Commission president, Ursula von der Leyen, in a press briefing in New Delhi. ‘It will cut up to €4 billion [£3.5 billion] in annual tariffs for exporters of all sizes and it will create good jobs for millions of workers in India as well as in Europe,’ she said. From a European perspective, the agreement enables diversification away from China and the US. For India, it enables secure access to the world’s largest single market. ‘We have sent a signal to the world that rules-based cooperation still delivers great outcomes,’ said von der Leyen.
The EU and India already trade over €180 billion worth of goods and services annually, affecting nearly 800,000 EU jobs. The agreement is projected to double EU goods exports to India by 2032.
Lowering barriers
The focus is on eliminating tariffs and trade barriers. For example, India will remove tariffs ranging up to 44% on machinery, 22% on chemicals and 11% on pharmaceuticals. As the agreement comes into force after ratification in Europe, the EU will eliminate tariffs on over 90% of imported products, or 91% in terms of value; whereas India will eliminate tariffs on 86% of products, and 93% in terms of value.
At a time when the US continues to tighten visa rules for Indians, the EU and India have also signed a Comprehensive Framework on Cooperation on Mobility – a pact aimed at easing the movement of Indian students, researchers and professionals across 27 EU states. ‘The pact will reduce strategic dependencies, bringing together Indian skills, services and scale with European technology, capital and innovation,’ said von der Leyen.
EU is also investigating Indian participation in Horizon Europe, the world’s largest public research programme. ‘I can’t wait for the best talents to work to advance health, clean energy, frontier technologies and we will set up India–EU innovation hubs. This will help researchers and startups to collaborate on next generation technology’, said von der Leyen. Both India and the EU have hailed the agreements as beneficial for both sides.
Steps towards a US deal
In parallel, on 2 February, President Trump posted on his Truth Social platform that the US and India had also ‘agreed a trade deal’. Official details emerged on 7 February when the two governments jointly announced they had ‘reached a framework for an Interim Agreement’ on trade.
Last year, Trump had imposed high and extensive tariffs on India – a 25% ‘reciprocal’ tariff, supposedly in response to Indian tariffs and non-tariff trade barriers on US goods, as well as a 25% penalty for buying Russian oil – sending Indo–US trade into a steep nosedive.
Under the proposed framework, the US would lower the reciprocal tariff from 25% to 18%. In return, India would work towards reducing tariffs and non-tariff barriers against the US to zero. India also agreed to buy $500 billion of US energy products, aircraft and aircraft parts, precious metals, technology products, and coking coal over the next 5 years, as well as increasing trade in other sectors.
While Trump’s Truth Social post included a Indian pledge to stop buying Russian oil and buy more from the US and Venezuela, no such commitment appeared in the official announcement.
Unlike the enthusiastic positive reception for EU agreement, the US deal has been heavily criticised by India’s opposition parties, which have dubbed it a capitulation by Prime Minister Narendra Modi and a sell-out of legitimate Indian interests.
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