The India-EU FTA: What to expect and what it means for businesses

After nearly 20 years in the making and 5 years to execute, the India-EU Free Trade Agreement won’t magically slash prices overnight or transform markets by next quarter. Every social media post I’ve come across includes posts about how much European products (cars, spirits, processed food, olive oil to name a few) will cost in India once it has been enforced. The agreement will reduce wine tariffs from 150% to 20% and car tariffs from 110% to 40% over the implementation period, but those reductions will be phased in over several years.

What it will do is create a framework for long-term strategic positioning.

The reality of FTA implementation

A lot of businesses get starry-eyed about FTAs, imagining immediate tariff windfalls and seamless cross-border operations. The reality is messier, slower, and more bureaucratic than anyone wants to admit.

Before a single benefit materializes, this agreement needs to survive the ordeal of local law integration and parliamentary approval, in India and across all 27 EU member states. Getting 27 EU member states plus India to ratify requires alignment across dozens of legislative bodies, each with domestic political pressures and competing priorities.

The real challenge isn’t the moment when leaders sign the treaty. It’s the years of work that follow, aligning India’s complex statutory framework with the EU’s equally intricate legal tapestry. For small and medium enterprises without armies of compliance officers, this presents a genuine headache.

What matters most to India-EU investors

If you’re putting money into India-EU trade plays, forget about tracking tariff percentages for a moment. Here’s what matters:

Regulatory certainty, not cost savings. When European businesses were surveyed by FEBI (Federation of European Businesses in India) in January 2026 about entering or expanding in India, regulatory predictability ranked higher than tariff reductions as both a barrier and an opportunity. Companies aren’t worried about saving 5% on duties. They’re worried about whether the rules will be the same next year, or next month.

This FTA is essentially a commitment device. It’s India and the EU saying, “We’re establishing a foundation that remains steady regardless of changing political climate.” For businesses trying to plan five-year investment horizons, that’s worth more than gold.

The 95% confidence signal. FEBI states that approximately 95% of European firms already operating in India plan to expand over the next five years. That’s not optimism; it’s a vote of confidence. These companies have boots on the ground. They understand the challenges. And they’re doubling down anyway.

Sector-specific divergence. Not all industries view this equally. Manufacturing, automotive, food & beverage, clean energy, and sustainability-focused sectors are showing the most enthusiasm. If you’re investing, pay attention to where the money flows, not just the headline numbers.

Compliance readiness: Large firms vs. SMEs

Large multinationals with dedicated trade compliance teams are already prepared. They’ve been war-gaming scenarios (like preparing contingency plans), building out compliance infrastructure by mapping bills of materials against FTA-specific rules of origin like Change in Tariff Classification (CTC), Value addition (VA), and using integrated data management tools that centralize supplier declarations and origin documentation, ensuring audit readiness and traceability across supply chains.

Small and medium enterprises? Many of them don’t have the budget and resources to hire specialized legal teams or navigate the evolving regulatory landscape. Additionally, compliance with EU standards involves complex certification, testing, traceability, and documentation procedures Yet, these SMEs will form the backbone of a lasting manufacturing ecosystem in India as suggested by Nirmal K. Minda, President of the Associated Chambers of Commerce & Industry of India (ASSOCHAM).

For investors, this creates both risk and opportunity. The SMEs that successfully navigate early implementation will have significant first-mover advantages. The ones that don’t will struggle. Understanding this compliance challenge is essential to recognizing why the FTA’s real impact unfolds over decades, not quarters.

Why the India-EU FTA is a long-term investment

The geopolitical context matters more than the economic fine print. In an era of supply chain diversification and strategic realignment, the FTA serves as an anchor amid ongoing geopolitical volatility. The EU’s perception of India has shifted dramatically over the past decade. This isn’t a new relationship; it’s a renewing one with far deeper strategic foundations.

What we’re watching isn’t a policy tweak. It’s architecture for sustained growth over 10 to 20 years. Treaty provisions will likely need revision. Compliance frameworks will evolve. This is a dynamic agreement rather than a static document.

Three steps to prepare for market entry

First, develop scenario-based strategies. Prepare contingency plans if political opposition delays ratification, begin supplier qualification in India immediately and establish compliance infrastructure for self-certification of origin. Don’t plan for one implementation pathway. The rollout will be phased, with different sectors and provisions coming online at different times. Map out multiple scenarios and prepare your business to pivot as clarity emerges.

Second, invest in legal readiness. IKEA took 12 years from when India first appeared on their radar to actually opening their first store in 2018. The company waited until 2012 when India changed foreign investment laws to allow 100% foreign ownership before committing to entry. IKEA lobbied hard to overcome initial hurdles, obtained permission to open stores with its global model intact, and worked closely with Indian authorities through lengthy negotiations to ensure compliance while preserving their business model.

Whether you’re a multinational or an SME, understanding the compliance landscape before it fully crystallizes gives you decision-making speed. The true value of this FTA isn’t cheaper goods, it’s the predictability to make long-term capital commitments. Build relationships with regulatory bodies, invest in understanding evolving standards, and position yourself to influence implementation where possible.

Third, focus on site selection. Together, India and EU represent around a quarter of the world’s population and about 25% of the global GDP. According to official reports from the European Union, there will be a 107.6% estimated increase in annual goods exported from EU to India by 2032. To have a strategic advantage over the competition, site selection is key. Chennai is the “Detroit of India” for the automotive sector; Tiruppur is the “Knitwear Capital” for textiles; Hyderabad is “Genome Valley” for pharmaceuticals. Location in the right cluster provides access to specialized talent, suppliers, incentives and industry ecosystems. Site selection expertise becomes critical here. Understanding cluster economics, regional incentives, and infrastructure capabilities determines success.

Bottom line: Is your business ready?

The India-EU FTA won’t transform your quarterly earnings. It probably won’t even show up in next year’s results. But it represents something more valuable: a foundation for sustainable, predictable growth in one of the world’s most important emerging markets. There are already 6,000 European companies operating in India and this agreement is going to boost competitiveness and create new opportunities across multiple sectors.

Ninety-five percent of European businesses in India plan to expand significantly. They’re in it for the long haul. The question isn’t whether the FTA will matter. It’s whether you’re prepared to think on the same timeline.

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For guidance on how these changes affect market entry or expansion plans, contact Tractus or India Consulting Manager Anand Verma at anand.verma@tractus-asia.com