India-EU trade pact to unlock growth, diversify trade amid global uncertainty: Moody’s 

India and the European Union (EU) have concluded negotiations on a landmark free trade agreement (FTA), marking a significant step toward deepening economic ties in a volatile global trade environment. According to Moody’s, while the deal will have limited near-term credit impact, its long-term implications are “credit positive” for both economies, supporting trade growth, diversification, and greater market stability. 

Announced on January 27, the FTA covers a market of nearly two billion people and close to one-quarter of global GDP. It is the largest free trade zone either party has ever agreed to, with projections from the Kiel Institute indicating bilateral trade expansion between 41% and 65%. The European Commission estimates annual duty savings of around €4 billion through tariff cuts on 96.6% of EU goods exports to India.

For India, the agreement aligns with its strategy to selectively diversify trade partners and reduce exposure to global disruptions — particularly following recent protectionist measures by the United States. The deal enhances India’s access to the high-value EU market in sectors such as textiles, leather, marine products, and gems and jewelry. Tariffs, which currently range from 4% to 26%, will be slashed on exports worth nearly $33 billion, improving competitiveness and boosting employment, especially in labor-intensive sectors.  

Meanwhile, EU exporters — particularly in automotive, machinery, and aircraft — stand to benefit from improved access to India’s fast-growing market. In the long run, EU exports to India could grow by 65%, contributing around 0.1% to the bloc’s GDP. 

India’s service sector, particularly IT, is also expected to gain from enhanced professional mobility under the new framework. The EU’s share in India’s software services exports has already climbed to 33% in FY2024-25 from 23% in FY2016-17, making it India’s second-largest services export market after the US. 

Lower tariffs on EU imports — currently about 8% of India’s total — will ease cost pressures and reduce input costs for Indian manufacturers through cheaper machinery and components. Consumers will also benefit as products like wine, olive oil, and chocolate become more affordable under a phased liberalisation plan. 

Beyond tariffs, the agreement includes regulatory cooperation, simplified customs, intellectual property protection, and dedicated support for small and medium enterprises. These measures are expected to lower transaction costs and improve predictability for businesses. 

Strategically, the FTA is expected to reduce China’s exports to India by 5-9%, thanks to the EU’s preferential margins — supporting both India’s supply-chain diversification and the EU’s de-risking from concentrated trade partners. 

Still, Moody’s cautions that the benefits will unfold gradually and depend on India’s ability to adapt to the EU’s strict standards on product quality, digital governance, and sustainability. The broader success of the deal will also hinge on India’s efforts to improve business friendliness and regulatory efficiency. 

Overall, the India-EU FTA represents a strategically timed, comprehensive deal poised to reinforce economic resilience for both regions in an increasingly uncertain global trade landscape.