As the global economic order faces what several leaders have describ`ed as a historic rupture, India and the European Union (EU) have concluded negotiations on a long-awaited free trade agreement (FTA) that seeks to double bilateral trade to nearly €250 billion within five years.
The deal, covering a market of almost two billion people and close to a quarter of global GDP, is being positioned not merely as a commercial pact but as a strategic hedge against geopolitical instability, tariff wars and climate-linked trade disruptions.
India–EU trade currently stands at about €24 billion ($136 billion). By eliminating tariffs on nearly 90% of traded goods, the agreement is expected to unlock savings of around €4 billion annually for businesses, while opening the door for services gains of up to $35 billion for India. The EU, already India’s largest trading partner, secures long-term access to one of the world’s fastest-growing consumer and industrial markets, while India gains diversification at a time of renewed volatility in US trade policy.
The agreement was repeatedly referenced during the recently concluded World Economic Forum (WEF) in Davos, where leaders openly questioned the durability of the post-war multilateral system. European Commission President Ursula von der Leyen called the India–EU pact “the mother of all deals” and said the bloc was “on the cusp of a historic trade agreement” that reflects a permanent shift in global alignments. “Nostalgia will not bring back the old order,” she warned, signalling that Europe is recalibrating its economic and strategic dependencies.
That recalibration has been accelerated by US President Donald Trump’s renewed threats of tariffs and sanctions, including warnings directed at European firms over Arctic and Greenland-linked minerals. At Davos, Canadian Prime Minister Mark Carney described the US-led global system as enduring a “rupture,” cautioning that middle powers risk marginalisation if they fail to act together. “If you are not at the table, you are on the menu,” he said, urging strategic cooperation among like-minded economies. Against this backdrop, the India–EU FTA emerges as a deliberate attempt to stitch trade and climate into a more stable, rules-based alternative. According to a note by Climate Trends, the agreement offers India partial insulation from potential US trade shocks while reinforcing the EU’s effort to build resilient supply chains beyond China. India’s “China Plus One” role in global manufacturing is expected to deepen, with export gains potentially reaching $50 billion by 2031 through services expansion and market diversification.
Crucially, climate considerations are not peripheral to the pact. While not all climate provisions are formally embedded in the treaty text, the FTA sits atop an expanding architecture of India–EU climate cooperation. The Clean Energy and Climate Partnership (CECP), launched in 2016, continues to guide joint efforts on renewable energy, energy efficiency and clean hydrogen. Green hydrogen, in particular, has emerged as a central pillar of cooperation, reflecting its importance in both India’s and Europe’s decarbonisation pathways.
The EU–India Trade and Technology Council (TTC) adds another layer, driving coordination on clean energy technologies, regulatory interoperability and green research and development. India’s strong presence at European Hydrogen Week in Rotterdam last year underscored its ambition to become a key hydrogen exporter to Europe. New Delhi is targeting $10 billion in foreign direct investment for 10 GW of electrolyser manufacturing capacity by 2030—an ambition closely aligned with Europe’s future import needs. “The deal signifies strategic alignment at a moment of high geopolitical uncertainty,” said Aarti Khosla, founder-director of Climate Trends. “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.”
Another sensitive intersection of climate and trade is the EU’s Carbon Border Adjustment Mechanism (CBAM), the world’s first carbon tariff on imports. Currently in its transitional phase, CBAM could impose costs of $2–4 billion annually on Indian exporters once fully implemented in 2026. While India has raised concerns about competitiveness, the mechanism has also opened negotiations on how India’s emerging carbon market might interface with EU standards.
Though no formal alignment exists yet, both sides have acknowledged the need to prevent trade frictions while maintaining climate ambition. Discussions are underway on monitoring, reporting and verification (MRV) systems as potential areas for mutual recognition, signalling a shift from confrontation to coordination.
Financial backing is also part of the equation. The European Investment Bank (EIB) has committed €2 billion towards climate-resilient infrastructure in India through the Coalition for Disaster Resilient Infrastructure (CDRI), reinforcing the message that Europe is willing to support its trade commitments with long-term capital and technical cooperation.
Madhura Joshi, Programme Lead–Asia at E3G, said the FTA could become the foundation for a deeper strategic partnership. “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,” she said, adding that clean tech collaboration could strengthen global supply chains beyond just India and Europe.
At Davos, French President Emmanuel Macron warned of a “world without rules,” calling the unchecked use of tariffs and coercion fundamentally unacceptable. His remarks echoed a broader European concern that trade, climate and security are now inseparable.
Taken together, the India–EU FTA arrives as both hedge and springboard cushioning India against protectionist headwinds while offering the EU a blueprint for climate-integrated trade that spans hydrogen markets, carbon pricing alignment and green investment.