FIW-PB 74: The EU-India Free Trade Agreement

After nearly two decades of intermittent negotiations, the EU and India announced the conclusion of a Free Trade Agreement (FTA) at their summit in New Delhi on 27 January 2026. This paper analyses the geo-political and geo-economic drivers behind the agreement, its principal features and its anticipated economic effects. Against a backdrop of escalating US trade protectionism, the erosion of the multilateral trading system, and shared incentives to reduce strategic dependence on China, both parties found compelling reasons to accelerate negotiations. The FTA provides for asymmetric but substantial tariff reductions – Indian duties on EU goods fall from an average of 16.2% towards zero on 86% of tariff lines, while the EU eliminates tariffs on 99.5% of Indian goods – and broadens market access in services, digital trade and professional mobility. Drawing on model simulations based on the Caliendo-Parro framework applied to the most recent OECD TiVA data, the paper quantifies trade and welfare effects for the EU, India and Austria specifically. It further argues that available model-based estimates represent lower bounds of the likely impact, as they do not fully capture dynamic gains from regulatory convergence, increased foreign direct investment, service liberalisation and enhanced skilled labour mobility. The paper concludes with a discussion of key implementation challenges, including the Carbon Border Adjustment Mechanism (CBAM), the pending Investment Protection Agreement, and the alignment of the EU's industrial strategy with India's industrialisation drive.