India-EU Trade Deal: What must happen next for ‘mother of deals’ to take effect?

India and the European Union have sealed a long-pending landmark trade agreement, Prime Minister Narendra Modi said on Tuesday, as both sides aim to buffer themselves against uncertain ties with the United States.

After almost two decades of intermittent negotiations, the pact is set to open India’s large and closely protected market to free trade with the 27-member EU, its largest trading partner.

EU chief Ursula von der Leyen said Tuesday that the new India-Europe trade agreement has created a vast market "of two billion people", as reported by AFP.

"Europe and India are making history today," von der Leyen said in a statement in New Delhi, where she is meeting Prime Minister Narendra Modi. “We have concluded the mother of all deals. We have created a free trade zone of two billion people, with both sides set to benefit.”

What needs to happen for the deal to start working?

According to the official release by the European Commission, here are the steps the EU still needs to take:

1. Publish negotiated draft texts.

2. Legal revision and translation into all official EU languages.

3. Propose the agreement to the Council for signature and conclusion.

4. Adoption by the Council.

5. Signing of the agreement between the EU and India.

6. European Parliament's agreement to the deal.

7. The Council's decision on concluding the deal (essentially allowing it to enter into force).

8. Once India also ratifies the Agreement, it can enter into force.

How will the deal avoid the products of non-Indian origin being imported into the EU through India just to benefit from the tariffs?

The EU and India have agreed on rules of origin that ensure that only products that have been significantly processed in one of the parties can benefit from the tariff preferences of the agreement. This will help avoid, the situation where other countries simply export to India and re-export to the EU, benefiting from the tariffs.

India-EU trade

India and the EU were also expected to finalise agreements to ease mobility for seasonal workers, students, researchers and highly skilled professionals, along with a security and defence partnership, AFP reported.

"India and Europe have made a clear choice. The choice of strategic partnership, dialogue and openness," von der Leyen wrote on social media. “We are showing a fractured world that another way is possible.”

Why India-EU trade deal matter?

India is on track to become the fourth-largest economy this year, according to International Monetary Fund projections.

PTI reported citing the official said that, apart from automobiles and steel, nearly all Indian goods—more than 93 per cent—will receive zero-duty access to the European Union. For the remaining just over 6 per cent, Indian exporters will benefit from tariff cuts and quota-based duty concessions, including for products such as automobiles.

The EU will eliminate import duty on 90 per cent of Indian goods on the first day of implementation of the free trade agreement (FTA), which is expected to come into force early next year. On three per cent, levies will be eliminated in a phased manner in seven years.

So 99.5 per cent of the trade value, concessions are being given by the EU to India," the official said, as reported by PTI.

On the other hand, the EU will get duty-free access for 93 per cent of its goods over a ten-year period in India. India will remove duties on only 30 per cent of European goods on the first day of implementing the pact.

India is also giving duty concessions and quota-based reductions on 3.7 per cent of trade value for the EU. In all, India is giving duty concessions on 97.5 per cent of the trade value for the EU. The major Indian sectors which will get duty-free access include textiles, apparel, clothing, marine products, chemicals, plastics, rubber, leather and footwear, base metals, gems and jewellery, furniture, toys, and sports goods, the official said, as reported by PTI.

New Delhi, which has relied on Moscow for key military hardware for decades, has tried to cut its dependence on Russia in recent years by diversifying imports and pushing its own domestic manufacturing base, AFP reported.

For India, the tariff cuts with the EU will lead to more exports in labour-intensive sectors that will help partly offset the impact of U.S. tariffs, said Ajay Srivastava, a former Indian trade official, as reported by Reuters.

He said the deal will also give an immediate price advantage for EU products in India because of some relief from its high tariffs, for instance, up to 110% on cars.

An India–US trade agreement fell apart last year following a breakdown in communication between the two governments.

Meanwhile, India–EU negotiations were revived in 2022 after a nine-year hiatus and gained fresh momentum after Trump imposed tariffs on multiple trading partners, including a 50% duty on Indian goods.

(With inputs from agencies)