The trade agreement between the EU and India offers great opportunities

After negotiations that lasted almost 20 years, the free trade agreement between the European Union and India has now been agreed. Ursula von der Leyen, António Costa and Narendra Modi sealed the agreement in New Delhi on Tuesday. According to the, several observers describe it as: Financial Times already as the “Mother of all trade deals”. The economic and geopolitical implications of the text go far beyond simple tariff reductions.

The agreement is intended to create a trade corridor between two economic areas that represent almost two billion consumers and around a quarter of the world’s gross domestic product. This is happening against the background of increasing fragmentation of international trade AP News emphasized at the official announcement.

Structurally unbalanced trading relationship

Even before the signing, trade between the EU and India was extensive but highly asymmetrical. In 2024, trade in goods amounted to RTL information to around 120 billion euros. Trade in services amounted to almost 60 billion euros.

For New Delhi, the European Union is the most important trading partner. However, India only accounts for around two percent of the EU’s total trade in goods. The new agreement is intended to correct this structural imbalance. The relationship has also been affected by widely varying tariffs. The Union levied tariffs of around 3.8 percent on average. India, on the other hand, demanded almost 9.3 percent, like the The Times of India reported before the agreement. There were particularly high tariffs in the automotive, chemical and textile sectors.

Tariffs: The economic heart of the agreement

Reducing these tariffs is therefore the economic backbone of the agreement. India is committed to eliminating or lowering tariff barriers on more than 90 percent of European exports. Loud The Economic Times This could mean annual savings of up to four billion euros for EU companies. The tariffs on European vehicles were previously over 100 percent. They will now be gradually reduced to around ten percent under certain conditions. This is a turning point for premium manufacturers, emphasized the Financial Times. Machinery, industrial plants, chemical and pharmaceutical products and wine also benefit from massive reductions or even the complete elimination of tariffs. This strengthens the attractiveness of the Indian market for European industry.

Textile industry: big winner from the agreement?

In the medium term, however, the agreement could have the greatest structural impact in the textile sector. India is already a major player in the global apparel industry, but is still underrepresented in the European market.

According to a statement from Jefferies at the end of January, the European Union imports more than $125 billion (105 billion euros) worth of textiles and clothing annually. The market is currently 30 percent dominated by China, while India only has a share of five to six percent.

The abolition of European tariffs, which previously ranged between ten and 16 percent, comes at a particularly important and opportune time. Indian textile exporters face tariffs of up to 50 percent in the US. This automatically strengthens the attractiveness of the European market as a priority sales market. For European brands and retailers, this development could accelerate supplier diversification. It could also secure delivery volumes and stabilize costs in an environment characterized by volatile global supply chains.

Impact on the European textile value chain

For the European textile value chain, the agreement opens up several simultaneous dynamics:

• a gradual shift in sourcing out of China amid trade tensions and increasing regulatory pressure.
• a qualitative upgrade of procurement, as India has recognized know-how in cotton, spinning, weaving and complex finishing.
• an opportunity to partially relocate production steps with high added value back to Europe, such as design, prototyping, final logistics or quality control.
• a reduction in the reputational risk associated with “Made in China” without resorting to zones of high regulatory and social uncertainty, as India already has a more transparent legal framework for European clients.

In the long term, this dynamic could establish India as a serious industrial alternative to China. At the same time, Europe could once again play a central role in design, quality assurance and the final finishing of textile products.

Moderate profits for the automotive and aviation industries

In contrast, some European industrial sectors could benefit only gradually. Although the reduction in Indian tariffs opens up new perspectives in the automotive industry, the actual effects must be viewed in a differentiated manner. A majority of European premium vehicles are already imported into India as kits that are assembled locally. This limits the immediate impact of liberalization, as Jefferies points out. In aviation, reducing tariffs on aircraft and spare parts could reduce costs. However, the net effect is partially offset by India’s internal tax.

Points of friction still exist

However, the agreement does not resolve all tensions. Trade barriers outside of tariffs, particularly the European Carbon Border Adjustment Mechanism (CBAM), remain a key concern for Indian exporters, according to Jefferies.

Some sensitive sectors, such as agriculture or certain digital services, remain excluded from the immediate scope of the agreement. In addition, ratification by the national parliaments and the European Parliament could take several months Financial Times noted.

New momentum for European value chains

At a macroeconomic level, the EU-India agreement is part of a broader reorganization of global value chains. It offers Europe a real alternative to dependence on East Asia. At the same time, it enables India to rise industrially and capture more value in developed markets.

For the European textile industry, it’s not just about costs. The agreement creates a tool to rebuild a more resilient and diversified supply chain. This should be better tailored to the social, ecological and political requirements of the continent.