The EU–India Free Trade Agreement: Economics Unlocked by Geopolitics

Abstract

Finalized in January 2026 after nearly two decades of intermittent negotiations, the EU–India Free Trade Agreement marks the conclusion of one of the most politically and technically demanding trade processes in recent EU history. Initially revived in the early 2020s under the logic of de-risking from China, the agreement was ultimately pushed across the finish line by a different geopolitical shock: the erosion of trust in U.S. trade policy under Trump 2.0, which transformed the FTA from a slow-moving ambition into a strategic imperative for both Brussels and New Delhi. In this rare case, geopolitical logic did not constrain economic outcomes but enabled otherwise politically unattainable gains. The final agreement is ambitious but not limitless. It covers the vast majority of bilateral trade, creating opportunities both for the EU’s export-oriented manufacturing sectors (including automotives) and specialty food producers and India’s labor-intense industries (like textiles) and competitive service sectors—meeting both sides’ minimum expectations. The FTA’s agricultural dimension is not the most substantive, but substantial: politically sensitive farm products have been carved out to prevent domestic backlash on both sides. Its provisions are limited to EU-only competences, so the FTA’s ratification process will likely be straightforward. Although short-to-medium term macroeconomic effects are expected to be modest, the EU’s “buy-in” to India’s growth trajectory could yield significant longer-term gains. For Hungary, as an export-oriented economy deeply embedded in European value chains, benefits will accrue mainly through increased demand for components in Germany’s India-bound exports, as well as new investment and partnership opportunities involving Indian firms.