India, EU agree on ‘mother of all’ trade deals

India and the European Union have agreed on a huge trade deal creating a free trade zone of two ‌billion people, European ​Commission President Ursula ‍von der Leyen and Indian Prime Minister Narendra Modi have said.

In a post on X during her visit to New Delhi on Tuesday, von der Leyen said the two parties were “making history today”.

“We have concluded the mother of all ​deals. ‌We have created a free trade zone of two ‌billion people, with ‌both sides ⁠set to benefit,” she added.

Modi said the landmark agreement, following nearly two decades of on-and-off ​negotiations, had been reached, hailing its benefits before a meeting with von der Leyen and European Council President Antonio Costa.

“This deal will bring many opportunities for India’s 1.4 billion and many millions of people of the EU,” he said.

The deal will cover about 25 percent of the global gross domestic product (GDP), Modi said, adding that India will get a boost in sectors including textiles, gems and jewellery, and leather goods.

The trade pact, which EU officials said was the most ambitious India had ever agreed, comes amid a push by Brussels and New Delhi to open up new markets in the face of tariffs imposed by the United States and Chinese export controls.

It will pave the way for ‍India, the world’s most populous nation, to open up its huge, protected market to free trade with the 27-nation EU, its biggest trading partner.

The EU, which views India as an important market for the future, said European companies would benefit from so-called “first mover advantage” in the Indian market, while New Delhi sees Europe as an important potential source of technology and investment.

The formal signing of the deal will take ‌place after legal vetting, expected to last five to six months, the Reuters news agency reported, quoting an Indian government official aware of the matter. The official said the deal was expected to be implemented within a year.

EU exports ‘expected to double’

The EU said it expected its exports to India to double by 2032 as a result of the deal.

Bilateral trade between India and the EU in goods has already grown by nearly 90 percent over the past decade, reaching 120 billion euros ($139bn) in 2024, according to EU figures. Trade in services accounts for a further 60 billion euros ($69bn), EU data shows.

Under the agreement, tariffs on 96.6 percent of EU goods exports to India would be eliminated or reduced, EU officials said. The deal would save up to 4 billion euros ($4.74bn) a year in duties on European products, officials said.

Among the products that would have tariffs all or mostly eliminated were machinery, chemicals and pharmaceuticals.

Tariffs on cars would gradually reduce to 10 percent with a quota of 250,000 vehicles a year, officials said, while EU service providers would gain privileged access to India in key areas such as financial and maritime services. Tariffs on EU aircraft and spacecraft would be eliminated for almost all products.

Tariffs would be cut to 20-30 percent on EU wine, 40 percent on spirits, and 50 percent on beer, while tariffs on fruit juices and processed food would be eliminated.

“The EU stands to gain the highest level of access ever granted to a trade partner in the traditionally protected Indian market,” von der Leyen said on Sunday. “We will gain a significant competitive advantage in key industrial and agri-good sectors.”

Last-minute talks on Monday had focused on several sticking points, including the impact of the EU’s carbon border tax on steel, sources familiar with the discussions told the AFP news agency.

‘A fresh hope’

Deepanshu Mohan, professor of economics at OP Jindal Global University near New Delhi, told Al Jazeera the deal offered “a fresh hope” to both the parties.

“It’s an important deal for the simple reason that India trades a lot with the EU,” he said. “A lot of the trade happens in goods, merchandise which India would technically want to expand given its high tariffs with the US.”

He said much of the trade in Indian products was in labour-intensive industries with the potential to create many jobs. At the same time, it offered the EU opportunities for market access in India, at a time many European economies were struggling.

“It gives a lot of possibilities for the EU as a region to expand its economic relationship with India.”

He said the timing of the announcement was significant, at a low point in the relationship between Europe and the US, while tensions between New Delhi and Washington remained over the high tariffs imposed on Indian exports.

“It’s come quietly at a time when unilateralism has become … a sort of cornerstone of trade negotiations,” he said.

‘Growing strategic partnership’

Talks on the India-EU trade deal were launched in 2007, but for many years made little progress. However, Russia’s full-scale invasion of Ukraine led to the relaunch of talks in 2022, while United States President Donald Trump’s aggressive tariff policy spurred rapid progress in negotiations.

India and the EU also announced the launch of a security and defence partnership, similar to partnerships the EU has with Japan and South Korea, as von der Leyen said Brussels and New Delhi would grow their strategic partnership further.

The moves come as India, which has relied on Russia for key military hardware for decades, has tried to reduce its dependence on Moscow by diversifying imports and pushing its domestic manufacturing base, while Europe is doing the same with regard to Washington.

The EU-India deal comes days after Brussels signed a key pact with the South American bloc Mercosur, following deals last year with Indonesia, Mexico and Switzerland. During the same period, New Delhi ​finalised pacts with the United Kingdom, New Zealand and ‌Oman.