As the world navigates the uncertain waters of global trade, India and the European Union (EU) are poised to embark on a transformative journey, negotiating what has been dubbed the “mother of all deals.” European Commission President Ursula von der Leyen and Indian Prime Minister Narendra Modi are set to lead the charge, with the two leaders scheduled to be chief guests at India’s Republic Day celebrations next Monday.
This high-level diplomatic engagement carries a powerful message – India is accelerating its strategic and trade ties with the world, diversifying its foreign policy and distancing itself from the whims of the Trump administration. The choice of guests underscores India’s desire to forge a more balanced and independent path, particularly as tensions with the United States over tariffs continue to simmer.
The potential trade agreement, which could be announced as early as January 27th, would mark India’s ninth free trade pact in just four years, following a string of deals with the UK, Oman, New Zealand, and others. For the EU, this deal comes on the heels of its recently concluded agreements with the Mercosur trading bloc, Japan, South Korea, and Vietnam.
Both sides are driven by a shared need for reliable trade partners, as geopolitical uncertainties have created a tumultuous environment for commerce. The EU seeks to offset its trade dependence on China, which it views as an unreliable partner, while India aims to mitigate the impact of US tariffs.
The agreement would also represent a significant effort by India to shed its notorious protectionist tendencies, according to Sumedha Dasgupta, a senior analyst at the Economist Intelligence Unit. For the EU, closer ties with India’s growing economic might, which is on track to surpass Japan and reach a GDP of $4 trillion this year, hold immense strategic value.
However, the negotiations have not been without their challenges. Intellectual property protection and the EU’s new carbon tax, the Carbon Border Adjustment Mechanism (CBAM), have emerged as major sticking points. The CBAM, in particular, is seen as a new border charge on Indian exports, which could disproportionately impact the country’s micro, small, and medium-sized enterprises.
Despite these hurdles, analysts believe the agreement could ultimately be a win-win for both sides, as it would expedite trade decoupling from the US and China, reducing vulnerabilities to the “weaponisation of supply chains.” The deal’s geopolitical symbolism may prove as important as its economic substance, as India and the EU seek to forge a more reliable and balanced trade partnership.
As the world watches closely, the India-EU trade agreement stands as a testament to the evolving global economic landscape, where strategic alliances and diversified trade relationships are becoming increasingly crucial in the face of an uncertain future.
