FTA with EU could add $50 billion to India’s trade surplus by FY31

India-EU free trade agreement: check full schedule, key changes, and impact on businesses

• India and EU set to announce free trade agreement on January 27
• Deal could boost India's trade surplus with EU by over $50 billion by FY31
• FTA aims to lower tariffs, increase exports, and deepen economic integration

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India and the European Union are widely expected to announce the conclusion of talks for a free trade agreement on January 27 that leaders on both sides have described as the “mother of all deals.”

A wide-ranging free trade agreement could widen India’s trade surplus with the European Union by over $50 billion by FY31, potentially lifting the bloc’s share in India’s exports to 22–23 percent from 17.3 percent in FY25, Emkay Global said in a research note on January 25.

Even though India accounts for just about 0.8 percent of the EU’s export market, the deal is increasingly important for Europe as well, with its trade deficit with India widening sharply to $15 billion in FY25 from a $3 billion surplus in FY19, and as the bloc looks to diversify its trade away from an over-reliance on the China plus-one strategy, the note said.

The upside is expected to be driven by a steady move up the value chain in India’s EU-bound exports, with higher-value segments such as electronics, machinery and chemicals gaining share over traditional labour-intensive goods.

The potential upside is crucial as EU’s share in India’s exports has inched down to 16.8 percent so far in FY26.

Europe’s widening trade deficit with India, reduced reliance on Russian energy and efforts to diversify supply chains away from China have already boosted demand for Indian refined fuels, electronics and chemicals, trends that an FTA could further accelerate, the note said.

In FY25, India–EU goods trade exceeded $136 billion, with Indian imports at $60.7 billion, while exports stood at 75.9 billion.

Indian exports to European Union, such as smartphones, garments, footwear, tyres, pharmaceuticals, auto parts, refined fuels and cut diamonds, largely substitute the bloc’s imports from third countries rather than compete with EU manufacturing, which has long offshored these activities, GTRI’s Founder Ajay Srivastava noted.

EU exports, high end machinery, aircraft, core electronic components, chemicals, quality medical devices and metal scrap, feed India’s factories, recycling industry and MSME clusters, raising productivity and export competitiveness, he added.

The FTA between the two nations is expected to lower or eliminate tariffs for India’s labour-intensive sectors, while EU may gain greater market access for its high-end cars and wines.

“Because both economies specialise in different segments, tariff elimination works as a cost-reduction tool rather than a displacement shock. An India–EU FTA would thus deliver classic trade gains, higher volumes, deeper integration and stronger industrial competitiveness on both sides, at a moment when such economically rational trade arrangements are becoming increasingly rare,” Srivastava said.

In February 2025, India and the EU decided to ramp up talks for the proposed free trade agreement, targeting to initially close it by the end of that year to tide over ongoing disruptions from volatile trade policies.

Being negotiated for nearly two decades, the India-EU trade deal has 24 chapters across goods and services.