The long-awaited free trade agreement (FTA) between India and the European Union is being billed as a trade breakthrough. But viewed through a climate and geopolitical lens, it is also a signal moment in how two major economic blocs are attempting to stabilise growth, supply chains, and decarbonisation pathways in a fractured global order.
According to a note by Climate Trends, the FTA arrives at a time when tariffs, carbon taxes, and industrial policy are increasingly weaponised, making the deal as much about strategic alignment as about market access.
The scale of the agreement is hard to miss. Together, India and the EU touch the lives of nearly 1.9 billion people — about 1.4 billion in India and close to 500 million in the EU. Combined, they account for around 30 percent of the world’s population and roughly 25 percent of the global economy, making this one of the most consequential bilateral trade pacts in recent years.
India and the EU together account for 11–12 percent of global trade
In trade terms, the partnership is already substantial. India and the EU together account for 11–12 percent of global trade, amounting to nearly $11 trillion out of an estimated $33 trillion global trade volume. Bilateral trade between the two currently stands at €124 billion ($136 billion) and is expected to double within five years.
India’s Commerce Minister Piyush Goyal and Ursula von der Leyen, President of the European Commission, have described the agreement as the “mother of all deals”.
Trade, geopolitics and climate converge
Beyond headline numbers, the agreement reflects a deeper geopolitical recalibration. With renewed uncertainty around US trade policy and rising economic nationalism globally, both India and the EU are seeking predictable, rules-based partnerships.
For India, the FTA provides diversification away from volatility in Western markets while strengthening its role as a manufacturing alternative under “China Plus One” strategies. For the EU, it secures long-term access to one of the world’s fastest-growing major economies at a time when supply chain resilience and strategic autonomy are becoming policy imperatives.
“The deal signifies strategic alignment at a moment of high geopolitical uncertainty,” said Aarti Khosla, Founder-Director of Climate Trends. “The EU has been the reigning power and India is a rising power. Their coming together, especially on climate goals, green industry and clean technology, signals where money and markets are going,” she said, adding that the agreement offers renewed space for multilateralism shaped by strategic choices rather than pure ideology.
Climate quietly embedded in the trade pact
While the FTA is not explicitly framed as a climate treaty, climate considerations run through the broader India–EU relationship. Cooperation under the Clean Energy and Climate Partnership (CECP), signed in 2016, continues across renewable energy, energy efficiency, and clean hydrogen.
Green hydrogen, in particular, has emerged as a key point of convergence. India has positioned itself as a potential exporter to Europe, backed by a growing domestic electrolyser manufacturing ecosystem. India is targeting $10 billion in foreign direct investment for 10 GW of electrolyser capacity by 2030, a scale that could help meet Europe’s future clean fuel import requirements, the Climate Trends note highlighted.
This cooperation is further reinforced through the EU–India Trade and Technology Council (TTC), which focuses on clean-energy technologies, regulatory interoperability, and joint research and development. India’s presence at European Hydrogen Week in Rotterdam last year underscored these ambitions.
Carbon borders and friction points
One of the most sensitive issues shaping the climate-trade interface is the EU’s Carbon Border Adjustment Mechanism (CBAM) — the world’s first carbon tariff on imports. Once fully implemented in 2026, CBAM could impose costs of $2–4 billion annually on Indian exporters in carbon-intensive sectors.
According to the Climate Trends note, while the FTA does not neutralise CBAM, it creates negotiating space. India has secured a most-favoured nation clause, ensuring it will not be treated less favourably than other trading partners under EU carbon rules. The agreement also includes support for Indian exporters to meet climate-related trade requirements, including cooperation on recognising India’s carbon pricing and verification systems, and assistance to cut emissions.
Beyond tariffs
The strategic significance of the deal lies in its long-term implications. From New Delhi’s perspective, the FTA could boost exports by up to $50 billion by 2031, particularly through services and diversified markets. For Brussels, it offers a pathway to build clean-energy industries without creating concentrated dependencies.
“The EU is already India’s largest trading partner. Conclusion of the FTA, long in the making, is a landmark moment,” said Madhura Joshi, Programme Lead – Asia at E3G. “It can be the building block for something more ambitious — a strategic partnership that goes beyond trade, providing a stable anchor for growth, resilience, and energy security,” she said. “A deeper partnership with clean technology as its foundation would strengthen global clean-energy supply chains,” she added.
Backing trade with finance, the European Investment Bank has already committed €2 billion towards climate-resilient infrastructure in India through the Coalition for Disaster Resilient Infrastructure, signalling that the EU is willing to support its trade ambitions with patient capital.
Taken together, the India–EU FTA represents more than a tariff-cutting exercise. As the Climate Trends note argues, it is both a hedge against protectionism and a springboard for climate-integrated growth — one that links nearly a third of humanity and a quarter of the global economy in an era of uncertainty.
Why the India–EU FTA Raises Eyebrows in a Trump World
While the India–EU free trade agreement is not explicitly targeted by Washington, it intersects with several trade and climate positions closely associated with Donald Trump, making it strategically relevant in the event of a second Trump presidency.
1. A powerful bloc outside US leverage
Together, India and the EU represent nearly 30 percent of the world’s population, around 25 percent of the global economy, and over 11 percent of global trade. Large, rules-based economic alignments formed outside US leadership have historically drawn Trump’s opposition, as they dilute Washington’s ability to use bilateral pressure.
2. Reduced impact of US tariff threats
Trump has relied heavily on tariffs as a negotiating and enforcement tool. The India–EU FTA gives both partners greater market diversification, reducing dependence on the US and limiting the effectiveness of future tariff-based pressure.
3. Climate-linked trade rules Trump opposes
The agreement unfolds alongside the EU’s Carbon Border Adjustment Mechanism (CBAM), which links climate policy directly to trade. Trump has consistently criticised carbon pricing and climate regulations, viewing them as economic constraints. India’s willingness to engage with EU climate-linked trade norms signals a shift towards a global trade architecture shaped by climate rules — even without US leadership.
Why it matters
The India–EU FTA reflects a move toward a multipolar, climate-integrated trade order. While Trump may not challenge the deal directly, its underlying logic runs counter to his preference for bilateral, tariff-driven negotiations — and could face friction in a more protectionist global environment.