GEOPOLITICAL...INDIA-EU.. FREE TRADE AGREEMENT....WHY THE US IS WATCHING.

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India–EU Free Trade Agreement: Why the Deal Matters—and Why the U.S. is Watching

India’s Republic Day on January 26, 2026, carried unusual geopolitical weight this year. The European Union’s top leadership—European Commission President Ursula von der Leyen and European Council President Antonio Costa—were in New Delhi as chief guests. The symbolism is deliberate. On January 27, they are set to co-chair the **India–EU Summit with Prime Minister Narendra Modi and formally announce the conclusion of the long-negotiated India–EU Free Trade Agreement (FTA).

While the deal is economic on the surface, its strategic implications—especially for the United States—are hard to miss.

What’s in the India–EU FTA?

After last-minute negotiations, several key provisions define the agreement.

Cars and Electric Vehicles

India will immediately cut import duties on European cars from 110% to 40%, with further phased reductions to 10–15% for luxury electric vehicles. This is a major boost for European brands such as BMW, Mercedes-Benz, and Volkswagen, giving them far better access to the Indian market.

Wines and Spirits

India will adopt a Tariff Rate Quota (TRQ) system. A limited volume of European wines and spirits will enter at lower duties, while the steep 150% tax will still apply to imports beyond the quota.

Protecting Farmers

Crucially, India has excluded dairy and agriculture from the deal. This protects nearly 80 million small farmers and prevents European milk and cheese products from flooding the Indian market.

Textiles, Jewellery, and Talent Mobility

India gains duty-free access for textiles and jewellery exports to the EU. A new professional mobility framework will also make it easier for Indian IT professionals to work across all 27 EU member states.

Why the United States Is Concerned

The timing of the agreement matters. The U.S. currently maintains 50% tariffs on Indian goods, while EU exports face 10–25% tariffs when entering the American market.

The Cost of Being Outside the Deal

Once the FTA is in force, European cars will enter India at 40% duty or less, while American-made vehicles will still face the full 110% tariff. This puts U.S. manufacturers at a serious disadvantage in the world’s most populous market.

Trade Diversification

India sends roughly 18% of its exports to the U.S. Expanded access to Europe allows New Delhi to offset American tariffs by redirecting trade toward Germany, France, and other EU economies.

Setting the Rules

India and the EU are also aligning on green trade standards, including the EU’s Carbon Border Adjustment Mechanism (CBAM). Once these standards are locked in, U.S. companies may have little choice but to follow them if they want access to India–EU supply chains.

The Talent Shift

Easier mobility for Indian tech workers in Europe could gradually shift talent and contracts away from the U.S., especially given ongoing H-1B visa constraints.

The Final Deal-Makers

Three last-minute elements have pushed the agreement over the line.

CBAM Compromise: Indian steelmakers may be allowed to pay carbon levies domestically—funding India’s green transition—instead of paying the tax at the EU border.

Loss of GSP Benefits: With the EU recently suspending preferential tariffs on most Indian goods, the FTA becomes essential to restoring competitiveness.

Luxury Car Quota: A limited number of European luxury cars (around 20,000–40,000 units) may enter India at 10–15% duty, protecting domestic automakers like Tata Motors and Mahindra.

The Bigger Picture

The India–EU FTA creates a $140+ billion trade corridor that reduces reliance on U.S.-centric trade routes. As long as Washington relies heavily on tariffs, India’s pivot toward Europe looks less like a tactical move and more like a strategic realignment.

For the United States, the message is clear:  Engage and negotiate—or risk watching two major economies move ahead without it.

                                                                            .......... PENDYALA VASUDEVA RAO

                                                                                                    Updated on 05.02.2026.

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