Right now, a landmark deal between India and the EU is set to create the world’s largest free trade zone.
Encompassing 2 billion people and nearly 25% of global GDP, the free trade agreement (FTA) envisions significant tariff cuts on a range of goods and services.
The So What
“This is one of the most significant opportunities for EU and Indian businesses in decades,” says Tim Figures, a senior expert on EU and global trade at BCG.
The FTA was announced in January after nearly two decades of negotiations. Once ratified, the deal will open pathways to greater trade resilience, diversification, and entry into new markets.
“The EU-India FTA is part of a wider realignment of trade flows,” he says. “Both the EU and India are trying to diversify their trading relationships and open access to a wider range of global markets. As both parties adapt to this new trade reality, they have been willing to do deals that, until recently, seemed off the table.”
There is vast untapped potential for both sides.
- EU annual global exports are worth $6.5 trillion but only $48 billion goes to India.
- India’s global exports total $396 billion with just $75 billion going to the EU.
Under the deal, India will eliminate or reduce tariffs on 96.6% of EU exports by value. Some sectors, such as food and beverages, will have duties removed immediately while others will see a phased reduction. The FTA is expected to double EU exports to India by 2032, according to the European Commission.
European carmakers stand to benefit substantially, with the phased reduction of tariffs from 110% to 10% on an annual quota of 250,000 vehicles. Tim Figures highlights this as a major opportunity for Europe’s automotive industry.
“India has historically had extremely high tariffs on automotives, so access to this market is a key win,” he says. “However, it’s worth noting that these tariff reductions will not apply for electric vehicles for five years.”
In exchange, the EU will grant immediate zero-tariff access for Indian exports of labor-intensive products including textiles, apparel, leather, and footwear.
Crucially, the deal could prove transformative for India’s booming service sector, widening access to European markets and freeing up employment prospects for service professionals. Pranidhi Sawhney, a consultant in BCG’s New Delhi office, expects the FTA to enhance labor mobility, making it relatively easier for Indian IT workers and other professionals to work across the EU’s 27 member states, thereby pushing knowledge-based exports from India.
“For the first time, entry and work rights will be extended to dependents of Indian workers/intra-corporate transferees when they move between EU countries,” she explains. “It’s a meaningful step toward smoother, more predictable professional mobility between India and Europe.”
There are still challenges to navigate with climate considerations a central part of the deal. The EU’s Carbon Border Adjustment Mechanism (CBAM) came into force this January. Indian exporters will have to comply as the FTA agreement offers no relief from carbon taxes levied on imports from energy-intensive industries such as steel and aluminum.
Brussels has pledged €500 million to support India's decarbonization efforts. And for businesses that position green credentials as a commercial differentiator rather than a compliance exercise, the opportunities are significant.
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Now What
Ratification of the EU-India FTA is expected to take around a year and companies that act decisively now will be best positioned to harness its transformative potential.
Capture sector-specific quick wins. Businesses should analyze their portfolio to identify opportunities where tariff reductions create competitive advantages. Sectors with immediate tariff elimination such as chemicals and textiles offer the fastest returns. Through scenario modeling, businesses can prioritize investments where the FTA delivers maximum impact.
Keep abreast of ratification and implementation. It will take some time for the deal to be ratified. In the meantime, elements of it may be applied provisionally. Knowing when benefits are likely to apply, and preparing for that timeline, will be critical. Business leaders can also consider establishing trade compliance processes to track implementation and flag any issues arising from the application of the new rules.
Build CBAM readiness from day one. Exporters from India should prepare for CBAM’s requirements through emissions measurement, reporting, and auditability. This means building low-carbon production pathways and digital traceability across the value chain. Energy-intensive producers should seek out the possibility of EU funding to help with decarbonization and CBAM compliance, with those moving fastest on sustainability gaining decisive competitive advantage.
Reconfigure supply chains for resilience and scale. The FTA rewards firms that build comprehensive capabilities, not just those securing tariff access. Companies should redesign supply chains for scale, reliability, and EU delivery timelines, strengthening tier one and tier two supplier ecosystems. Upgrading quality systems, testing, and certification to meet EU-grade requirements will remove bottlenecks in conformity assessment.
Master the rules of origin toolkit. Preferential tariffs only apply if goods meet specific origin thresholds and provide the right documentation to prove it. Companies should assess which products qualify under the FTA and redesign sourcing and manufacturing footprints to maximize eligibility. This requires identifying qualifying products, simplifying documentation processes, and reducing preference leakage.
