What to expect from the India–EU alliance?

The announcement of the trade agreement between the European Union (EU) and India, sealed in January 2026, was received with the pomp reserved for major civilizational milestones. Nicknamed by Prime Minister Narendra Modi as the “mother of all agreements,” the pact outlines a free trade zone that brings together the world’s largest trading bloc and the planet’s most populous nation. Together, they represent 2 billion consumers and 25% of global GDP. However, behind the optimistic rhetoric and handshakes in New Delhi lies a high-risk gamble that could redefine, for better or worse, Europe’s economic future.

The end of barriers and geopolitical risk

For European industry, especially German industry, the treaty may be viewed positively. After two decades of drawn-out negotiations, India has finally conceded in historically protected sectors.

Automotive sector: tariffs that once reached 110% will gradually fall to 10%.

Luxury and consumer goods: European wines, chocolates, and pasta will now have a clear path to India’s growing middle class, with tariff reductions reaching 130 percentage points.

The strategy behind this opening is what the market calls friendshoring. In practice, friendshoring is the redirection of supply chains toward countries considered political and ideological allies. Unlike the old offshoring model, focused solely on cost, this approach prioritizes national security and diplomatic stability, seeking to prevent critical inputs from becoming hostage to regimes in direct conflict with the bloc’s interests. In the context of a tariff war with Donald Trump’s United States and a dangerous dependence on China, India presents itself as a production hub with significantly lower costs, but with a democratic façade that appeals to European investors.

The most sensitive point of the agreement, however, lies in geopolitics. There is a latent belief in Brussels that strengthening trade ties will result in India’s automatic alignment against the Moscow–Beijing axis. This is perhaps the greatest illusion of the deal.

Narendra Modi does not govern to be a subordinate ally of the West. His ideology is shaped by nationalism and “multilateralism.” The India now opening its doors to European technology is the same India that acts as one of the main buyers of Russian oil (so far) and maintains cross-investments with China. For the Indian government, the agreement can be seen as a tool to accumulate capital and technology in order to become an independent hyperpower. Europe risks financing the rise of a giant that soon will have no commitment to European strategic interests.

European deindustrialization

While the high-tech and luxury sectors of northern Europe celebrate, the south and east of the continent view the treaty with suspicion. With wages in Indian industry averaging six times lower than in China and twenty-eight times lower than in Germany, the risk of a new wave of European deindustrialization is real. Italy’s and Portugal’s textile sectors, as well as the generic pharmaceutical industry, could be devastated by a flood of Indian products that, paradoxically, use cheap Chinese inputs.

This disparity touches a critical nerve, the political fragmentation of the EU itself. The agreement tends to crystallize a division in which the high-tech sector consolidates, while those still dependent on traditional manufacturing are exposed to unbeatable competition. At the end of the day, the pact may end up benefiting a German industrial elite while eroding the productive base of less competitive European nations, aggravating internal tensions within the bloc. Moreover, by opening its market now to gain breathing room in the automotive sector, Europe may be handing over the know-how necessary for India to replace European imports with its own domestic production in less than a decade.

The economic challenge

The India–EU agreement is undeniably a historic and necessary step for the resilience of global supply chains in a century marked by disruptions. Amid the exhaustion of the model of total interdependence with China and the unpredictability of Washington’s guidelines, the pact offers a viable alternative to the China–U.S. hegemonic duopoly, opening the floodgates of markets that remained locked for generations under New Delhi’s protectionist grip.

However, if Europe limits itself to reissuing the old recipe of exporting luxury goods and cutting-edge technology to an emerging elite while importing low-value, labor-intensive manufactured products, it will not have diversified its partners, but merely outsourced its own vulnerability. By doing so, the EU will not be building an ally, but rather, as mentioned earlier, feeding the foundations of a new hegemonic competitor that, in less than two decades, may use European capital itself to expel the continent’s industries from their historic niches.

The true success of this treaty will not come from the bureaucracy of customs quotas or the immediate accounting of trade surpluses, but from the courage to promote radical technological innovation and intelligent protection of strategic sectors. It is imperative that the EU understand that, on the chessboard of the 21st century, free trade is not an end in itself, but a tool of power. Without mechanisms that ensure real reciprocity and prevent social and environmental dumping, the “mother of all agreements” risks being remembered only as something belated and fragile. Europe stands before a challenge.

I recommend reading this for a better understanding of the EU and its challenges:  https://amzn.to/4kvn0Vt

João Pedro do Nascimento

Bachelor’s degree in International Relations, with a postgraduate qualification in Public Policy. He serves as editor-in-chief of a website specialized in international analysis and has experience in translation, business mediation, and international cooperation. Fluent in English and Spanish, he has collaborated with companies and organizations in multilingual and multicultural contexts.