India and EU expected to conclude free trade negotiations on Tuesday

India and the European Union are expected to announce the conclusion of long-running negotiations for a free trade agreement on Tuesday, two Indian and EU government sources told Reuters.

The deal would open the way for reduced tariffs on European cars and wine, while expanding market access for Indian electronics, textiles and chemicals.

An announcement could follow Indian Prime Minister Narendra Modi’s meeting with European Council President Antonio Costa and European Commission President Ursula von der Leyen, who will co-chair an India–EU summit during their visit to India from January 25 to 28, one of the Indian government sources said.

An EU official said the bloc aimed to “conclude negotiations on the free trade agreement” during the summit, before both sides move through internal procedures towards signing.

The two sides are also expected to sign a security and defence pact — Europe’s third in Asia after agreements with South Korea and Japan — along with a mobility agreement covering high-skilled workers and students, the official said.

Flurry of trade deals as countries hedge US ties

If finalised and ratified by the European Parliament, a process that could take at least a year, the trade pact would boost Indian exports such as textiles and jewellery, an Indian official said. Negotiations were relaunched in 2022 after a nine-year pause and gained momentum last year amid rising global trade tensions.

In August, U.S. President Donald Trump doubled tariffs on Indian imports to as much as 50 per cent, among the highest in the world.

At the World Economic Forum in Davos on Tuesday, von der Leyen said the EU was close to concluding the agreement but acknowledged that additional work remained. The move follows a recent EU deal with South American bloc Mercosur and other trade agreements. India has also signed trade pacts with partners including Britain, New Zealand and Oman.

The deals reflect efforts to hedge against the United States, as Trump’s push for control over Greenland and tariff threats against European nations test long-standing Western alliances.

Bilateral trade between India and the EU totalled $136.5 billion in the fiscal year to March 2025, making the 27-nation bloc one of India’s largest trading partners.

“Negotiators are still trying to bridge differences on several sensitive issues, including India’s reluctance to sharply cut tariffs on auto imports,” an EU government source said.

Lower car import duties would help European automakers such as Volkswagen and Renault expand in India by making imported models more price-competitive. India, the world’s third-largest car market, has attracted global manufacturers, but high tariffs have limited growth.

India’s commerce ministry did not immediately respond to an email seeking comment.

Non-tariff barriers

A key concern for New Delhi remains non-tariff barriers, including the EU’s newly introduced carbon levies on imports such as steel, aluminium and cement.

The bloc has also withdrawn some tariff reductions previously granted to India as Brussels rolls back special trade treatment under its Generalised System of Preferences (GSP).

The suspension, extended this month for another two years, will affect Indian exports worth $1.95 billion, India’s trade ministry said on Friday, although an FTA would help offset the impact.

It could also help offset losses faced by Indian textile and jewellery exporters in the U.S., Ajay Srivastava, founder of the Delhi-based think tank Global Trade Research Initiative, said.

“An India–EU FTA would cut tariffs on textiles, garments and leather, letting Indian exporters compete more evenly with Bangladesh and Vietnam,” he said.

The EU imports nearly $125 billion worth of textiles annually, with India holding a 5–6 per cent share compared with China’s 30 per cent, underlining the potential gains from an agreement amid rising U.S. tariffs.

India’s autos, electronics, textiles, pharmaceuticals and chemicals are likely to emerge as key beneficiaries of a potential India–EU FTA, according to Jefferies.

Some agricultural items have been excluded from the negotiations, an Indian trade ministry official said earlier.

(With inputs from Reuters)