Late January marked a breakthrough when EU and Indian officials finalized terms of a free trade pact. The agreement is scheduled for formal signature within the coming months and is expected to enter into force in 2027.
Analysts cited by Gudok attribute the agreement's success partly to the tariff policies implemented by the Trump administration, which appears to have accelerated the process.
Trump's pressure and reverse steps
It should be noted that on April 2, 2025, U.S. President Donald Trump unveiled a sweeping tariff package with far-reaching implications for global trade. The administration dubbed the occasion "Liberation Day" and implemented a baseline import tariff of 10% across all trading partners, with notable exceptions for Russia and Belarus. India faced a considerably higher rate of 26%, while EU imports incurred a 20% duty.
India had previously implemented retaliatory tariffs of 52% on American products.
Subsequently, U.S. tariff policy toward EU member states underwent gradual moderation. By late July of the preceding year, the EU successfully secured a reduction of duties on the majority of goods to 15%, encompassing automobiles and pharmaceutical products. On select product categories—notably aircraft and aerospace components, chemicals, pharmaceuticals, and certain agricultural commodities—the United States eliminated tariffs entirely. Notably, tariffs on steel and aluminum remained fixed at approximately 50%.
According to Olga Belenkaya, head of macroeconomic analysis at Finam Group, this tariff moderation represented not an act of American benevolence but rather an arrangement whereby the EU was compelled to commit to substantially increased procurement of American energy resources and enhanced capital investment in the U.S. economy.
India's refusal to become party to the bilateral arrangement left it exposed to heightened U.S. economic pressure. The catalyst for escalation was India's continued procurement of Russian crude oil. As a punitive measure, the United States imposed additional tariffs of 25% on Indian goods. By late August of the preceding year, cumulative U.S. tariffs on Indian imports had reached 50%.
Greenland: A Source of Transatlantic Friction
The closing months of the previous year witnessed numerous policy disagreements in U.S.-EU relations. The Greenland dispute served only to exacerbate underlying tensions.
Brussels subsequently initiated a strategic reassessment, actively exploring economic alternatives to American partnerships. The European Union is now pursuing a diversification strategy aimed at strengthening market presence among Global South economies, according to Irina Abanina, associate professor of international business at the Financial University of Russia.
Against this backdrop, European policymakers redirected attention toward India. India is simultaneously pursuing expanded technological access—particularly from European sources, the analyst notes. "India is hoping to gain entry to critical European market segments, encompassing information technology, business services, and higher education, while simultaneously attracting high-value services and capital investment from the EU," Olga Belenkaya elaborated.
Key agreement terms
The EU-India free trade accord establishes tariff reductions covering more than 99% of Indian exports to the European Union and exceeding 90% of European exports to India. According to Olga Belenkaya's analysis, European exporters are anticipated to realize annual savings of approximately €4 billion ($4.74 billion) from these tariff eliminations.
Belenkaya identifies agriculture, food manufacturing, viticulture, machinery, electrical equipment, automobiles, chemicals, aerospace, and ferrous metallurgy as primary beneficiaries—with notable carve-outs preserving tariffs on soybeans, beef, sugar, rice, and dairy products (Editor's note).
"The free trade agreement affords Indian exporters a significant opportunity to scale labor-intensive manufacturing sectors, encompassing textiles, apparel, leather goods, footwear, seafood, jewelry, artisanal products, machinery, and automobiles—segments India projects will generate approximately $33 billion in annual export volume," Belenkaya elaborated.
In the services domain, the agreement is to provide EU enterprises preferential access to the Indian market, notably in financial and maritime services sectors. According to European Commission projections, EU merchandise exports to India are anticipated to double by 2032, as Irina Abanina observes.
While the new agreement does not fully compensate both parties for market share losses in the United States, Olga Belenkaya contends that the emerging pattern of trade diversification away from American markets has become increasingly pronounced.
"Free trade should theoretically catalyze foreign direct investment inflows and establish conditions conducive to business expansion and innovation across both the EU and India. European enterprises will benefit from expanded capacity to relocate labor-intensive manufacturing operations while simultaneously gaining preferential access to India's services sector, encompassing maritime transportation and financial services," Irina Abanina concluded.
Russia's Interest
Analysts contend that sustained Indian economic growth and expanded EU exports could unlock opportunities for Russia-India collaboration in energy, machinery manufacturing, and agribusiness. Russian raw material demand for processing in India may consequently increase.
"According to the draft agreement published on the European Commission portal, the parties established that goods shall qualify as 'Made in India' notwithstanding the incorporation of foreign raw materials in production. This framework presents Russia with a dual proposition: on one hand, the prospect of entrenching its raw material supplier position indefinitely, yet conversely, opportunities to develop innovative processing partnerships calibrated to contemporary geopolitical constraints," Abanina observed.
The analyst further notes that the free trade agreement could stimulate parallel imports of select European merchandise into Russia via India, leveraging reduced tariff regimes. Increased cargo throughput would strain Russian port facilities and transportation networks, yet simultaneously create investment opportunities in infrastructure modernization and employment generation, she concluded.
The EU-India agreement will facilitate the realization of Russia's transit potential through increased cargo volumes along the North-South International Transport Corridor, which will positively impact Russian Railways' performance," said Anastasia Prikladova, associate professor of international business at Plekhanov Russian University of Economics.
The U.S. have eaten its words
Nonetheless, the Trump administration found this trajectory untenable. This shift, to everyone’s surprise, became apparent when Washington unexpectedly moved to conclude a bilateral arrangement with India.
On February 2 of the current year, Washington and New Delhi announced a tariff reduction agreement, reversing previously imposed duties between the nations.
"India's accelerating economic engagement with the EU and prospective coordination with Canada triggered alarm within the U.S. administration, catalyzing efforts to forestall India's complete disengagement from American economic partnerships—relationships that had deteriorated substantially under the weight of punitive tariff regimes," Belenkaya assessed.
Trump first rescinded the additional 25% tariffs on Indian goods that he had previously imposed in response to India's Russian oil purchases. "I have decided to revoke the additional ad valorem tariff rate imposed on Indian imports (...)," the presidential order, released by the White House, stated.
The bilateral agreement simultaneously reduces Indian tariffs from 50% to 18%. New Delhi reciprocally committed to eliminating all import duties on American merchandise. India additionally pledged to procure $500 billion in American goods.
The presidential directive establishes that India has undertaken to discontinue both direct and indirect Russian oil imports, committed to sourcing energy exclusively from the United States, and recently concluded a ten-year defense cooperation framework with Washington.
"Prime Minister Narendra Modi has agreed to terminate Russian oil purchases," Trump announced via social media.
Russian presidential spokesman Dmitry Peskov reported that Moscow had not received formal notification from New Delhi regarding cessation of Russian crude imports.
On February 6, U.S. and Indian officials reconvened to finalize agreement parameters. Both parties announced a framework accord targeting ratification by March of the current year.
According to Reuters reporting, within 48 hours of the bilateral meeting, major Indian refiners—Indian Oil, Bharat Petroleum, and Reliance Industries—commenced avoidance of Russian crude purchases and declined trader offers for April deliveries. Additional refiners entirely discontinued Russian raw material procurement.
Nevertheless, New Delhi has issued no formal declaration regarding Russian oil import cessation. The Indian Ministry of Foreign Affairs emphasized that energy source diversification, reflecting objective market conditions and the evolving geopolitical environment, constitutes the cornerstone of their energy security strategy for the world's most populous nation.
Yulia Prokofieva
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