India and the European Union are preparing to announce the conclusion of a long-awaited free trade agreement at the India–EU Summit in New Delhi on January 27, marking a decisive turn in negotiations that began in 2007 and stalled multiple times over market access, labour rules, intellectual property norms and regulatory standards.

The renewed urgency around the pact reflects a broader change in global trade patterns. Supply chains are being redrawn, countries are reassessing exposure to China, and both Brussels and New Delhi see strategic value in institutionalising a stable, rules-based economic partnership. Negotiations, which were revived in 2022, have accelerated sharply over the past year with negotiators indicating that only a handful of sensitive issues remain unresolved.

At the heart of the discussions lies a politically sensitive but economically significant proposal from India to cut import duties on European automobiles. Fully built cars currently face tariffs ranging between 70% and 110%. Under the plan being discussed, duties on a limited number of EU-made vehicles priced above 15,000 euros could fall to 40% initially, with a gradual glide path towards 10% over time. Reports suggest that this relaxation may apply to around 200,000 internal combustion engine vehicles annually, while battery electric vehicles may remain excluded for the first five years to protect domestic investments.

For European carmakers such as Volkswagen, Mercedes-Benz and BMW, this represents unprecedented access to a market that has historically remained among the most protected globally. For India, the proposal reflects a calibrated opening rather than full liberalisation, balancing domestic industry interests with broader trade objectives.

India’s primary objective from the agreement lies elsewhere. The country is seeking improved access for labour-intensive exports including textiles, garments, leather, gems and jewellery, engineering goods and processed food. These sectors lost tariff advantages after the EU began withdrawing concessions under its Generalised System of Preferences in 2023. A formal FTA could restore competitiveness for Indian exporters in one of the world’s largest consumer markets.

India is also pushing for easier regulatory pathways for pharmaceuticals and chemicals, greater access for IT and professional services firms, smoother mobility for skilled workers and relief from double social security contributions. At the same time, sensitive sectors such as agriculture and dairy are being kept outside the scope of tariff negotiations, reflecting New Delhi’s consistent approach to shielding domestic farming interests.

From the EU’s perspective, the agreement opens deeper access to one of the fastest-growing major economies. European wines and spirits, currently facing duties as high as 150–200%, are expected to see phased reductions. Machinery, chemicals, medical devices, electrical equipment and premium consumer goods stand to benefit from lower tariffs and simplified certification requirements. Brussels is also seeking stronger rules around procurement, intellectual property, labour standards, environmental compliance and investment protection, areas where it traditionally pushes for higher benchmarks in trade deals.

However, not all issues are settled. India has reportedly resisted EU demands to eliminate tariffs on more than 95% of goods, signalling a willingness closer to 90%. Autos, wines and spirits continue to be politically sensitive categories with India preferring quotas and phased reductions rather than immediate liberalisation.

A significant unresolved concern for India is the EU’s Carbon Border Adjustment Mechanism. From 2026, this mechanism could impose levies ranging between 20% and 35% on carbon-intensive imports such as steel, aluminium and cement. Whether India secures relief or carve-outs under the FTA framework remains uncertain. Non-tariff barriers, including stringent standards and certification requirements in Europe, are also sticking points for Indian exporters.

Even if leaders formally announce the conclusion of negotiations this week, the agreement will not come into force immediately. Legal finalisation and ratification by the European Parliament will follow, a process that could take at least a year and may face political scrutiny within member states. Investment protection and geographical indications are being negotiated separately, narrowing the immediate scope of the agreement to goods, services and trade rules.

The FTA, if ratified, has the potential to alter export competitiveness for multiple Indian sectors. Textiles, engineering goods, gems and jewellery and processed foods could regain pricing advantages in the EU market. At the same time, calibrated tariff reductions on autos and wines signal a gradual opening of India’s premium consumption segments to European imports.

Automobiles, textiles, engineering goods, pharmaceuticals, chemicals and alcoholic beverages are directly influenced by the proposed tariff resets and regulatory easing. Metals and cement exporters remain exposed to CBAM-related uncertainties.