In a landmark move that reshapes both trade and climate diplomacy, India and the European Union have concluded negotiations on a long-anticipated free trade agreement (FTA), positioning the partnership as a stabilising force in an increasingly fragmented global economy. The deal, expected to double bilateral trade from its current 124 billion euros ($136 billion) within five years, arrives at a moment when tariffs, carbon taxes and geopolitical rivalry are redefining global commerce.
Commerce Minister Piyush Goyal and European Commission President Ursula von der Leyen have described the agreement as the "mother of all deals", reflecting its scale and ambition.
Under the FTA, 99 per cent of Indian goods exported to the EU will gain preferential market access, while new pathways open for skilled and semi-skilled Indian workers. According to the Indian government, the agreement will unlock 4 billion euros ($4.4 billion) in annual savings and slash tariffs of up to 10 per cent on Indian goods worth $33 billion.
For New Delhi, the timing is strategic. The deal offers insulation against a potential resurgence of US protectionism under a second Donald Trump administration, even as Washington signals a tougher stance on tariffs and industrial policy. For Brussels, the FTA secures long-term access to one of the world's fastest-growing major economies and deepens EU engagement in the Indo-Pacific at a time when transatlantic dependencies are being reassessed.
Speaking to NDTV, Prof Anjal Prakash, Clinical Associate Research Professor at Indian School of Business and author of Intergovernmental Panel On Climate Change (IPCC), stated, "The recent conclusion of the India-EU Free Trade Agreement on January 26, 2026, signifies a transformative moment for the intersection of climate policy and trade. While offering modest direct mitigation regarding the EU's CBAM on Indian steel and aluminium exports, the agreement establishes a framework for technical collaboration and carbon pricing alignment, empowering Indian exporters in their decarbonisation efforts. Further, the creation of a Green Hydrogen Task Force underlines both parties' commitment to enhancing production and storage capabilities, aligning with India's ambitions and the EU's import needs. Through diversified supply chains and sustainable investments, this deal takes a firm stand against global protectionism, reinforcing India's 2070 net-zero objectives and energy transition strategies within a cohesive climate framework."
Trade Meets Geopolitics
The agreement lands amid a global geoeconomic confrontation where trade policy has become a tool of power politics. This was on display at the World Economic Forum in Davos, where US President Donald Trump threatened sanctions on European firms over Arctic minerals. Against this backdrop, both India and the EU entered negotiations seeking to hedge against market volatility and policy fragmentation.
With India chairing BRICS and the EU rethinking its strategic autonomy, the FTA represents a deliberate effort to stitch together trade and climate policy into a rules-based alternative. It signals a shared bet that middle powers can still shape global norms, even as traditional alliances strain.
"The deal signifies strategic alignment at a moment of high geopolitical uncertainty. The EU has been the reigning power, and India is a rising power. The coming together of these global powers, especially on climate goals, green industry and clean tech, shows which way money and markets are going. The deal signals constructive alignment, building trust and giving a chance to multilateralism, which will now be more and more based on strategic choices," said Aarti Khosla, Founder-Director, Climate Trends.
A Climate-Forward Trade Pact
Unlike many conventional trade deals, the India-EU FTA is emerging as a platform for climate-trade convergence. Climate cooperation is not an add-on but builds on existing institutional frameworks. The Clean Energy and Climate Partnership (CECP), first signed in 2016, continues to coordinate joint work on renewable energy, energy efficiency and clean hydrogen. The partnership focuses on helping India transition to cleaner energy while keeping power affordable. European institutions, including the European Investment Bank, have supported solar projects and upgrades to India's power grid, enabling greater integration of renewable energy.
Green hydrogen, in particular, has become a central pillar, with both sides viewing it as critical to their decarbonisation pathways.
"The EU is already India's largest trading partner. The conclusion of the FTA, long in the making, is a landmark moment. It can be the building block for something more ambitious: a strategic partnership that goes beyond trade, providing a stable anchor to boost economic growth, build resilience, improve energy security, and build a future-ready, collaborative relationship. Both sides face a common challenge: building clean energy industries without concentrated dependencies. The complementarity is real, the opportunity is significant, and the timing is right. A deeper partnership with clean tech as a foundation would build resilience, not just for both regions, but for global clean energy supply chains," said Madhura Joshi, Programme Lead - Asia, E3G.
Complementing this is the EU-India Trade and Technology Council (TTC), which is driving coordination on clean energy technologies, regulatory interoperability and green research and development.
India's prominent participation at European Hydrogen Week in Rotterdam last year underscored its ambition to become a hydrogen exporter to Europe. This ambition is backed by a growing domestic electrolyser manufacturing base, with India targeting $10 billion in foreign direct investment to build 10 GW of electrolyser capacity by 2030 - capacity that could help meet future EU import needs.
While these elements are not yet fully codified in the FTA's legal text, policymakers on both sides increasingly view hydrogen, clean grids and resilient infrastructure as natural extensions of the trade framework.
Navigating The CBAM Challenge
One of the most sensitive issues in the negotiations was the EU's Carbon Border Adjustment Mechanism (CBAM), the world's first carbon tariff on imports, now in its transitional phase and set to be fully implemented in 2026. For Indian exporters - particularly in steel, aluminium and cement - CBAM poses a significant cost risk, estimated at $2-4 billion annually.
"The EU CBAM emerged as a key issue in the FTA negotiations, reportedly stretching negotiations until the final stages. India's decision to treat CBAM as a core concern highlights the scale of its potential impact. Our analysis shows that, at a carbon price of 100 euros per tonne, CBAM could impose an additional cost of around 25 per cent on Indian exports. While the EU has not signalled any rethink of the regulation itself, early references to technical coordination, financial assistance and targeted decarbonisation support indicate some movement. Further details would help clarify how EU-India cooperation can address the impacts of EU CBAM on India," Trishant Dev, climate change expert of the Centre for Science and Environment, told NDTV.
India has secured a most-favoured nation clause under the FTA to ensure it is not treated less favourably than other trading partners under EU carbon rules. The agreement also includes cooperation to help Indian exporters meet new climate-related trade requirements, including recognition of India's emerging carbon pricing and verification systems, as well as financial and technical assistance to reduce emissions.
From Delhi's perspective, the FTA helps offset CBAM-related risks by potentially boosting exports by up to $50 billion by 2031, particularly through services and diversified manufacturing. It also reinforces India's "China Plus One" role in global supply chains, offering European firms a resilient alternative manufacturing base.
Backed By Finance And Institutions
Trade commitments are being reinforced with capital. The European Investment Bank (EIB) has already committed 2 billion euros toward climate-resilient infrastructure in India through the Coalition for Disaster Resilient Infrastructure (CDRI). This signals the EU's willingness to pair market access with patient capital and technical support for India's energy transition.
Taken together, the FTA functions as both a hedge and a springboard, buffering India against protectionist headwinds from the US while strengthening its leadership credentials as BRICS chair. For the EU, it offers a blueprint for climate-integrated trade that spans hydrogen markets, carbon pricing alignment and green investment, designed to endure tariff shocks and geopolitical fragmentation.
As global trade splinters under the weight of geopolitics and climate urgency, the India-EU FTA stands out as an attempt to reconcile growth with decarbonisation and to prove that strategic cooperation, not isolation, can still shape the rules of the global economy.
