The free trade agreement between Brussels and New Delhi, signed on 27 January 2026, marks a turning point that has been awaited for almost two decades of gruelling negotiations. However, to the attentive observer, it is clear that we are not dealing with a union based on an ideal communion of intent or a shared worldview. Rather, it is a ‘marriage of convenience’ dictated by realpolitik: the pressing need to put up a common front against China’s trade hegemony and the instability caused by renewed US protectionist policies. Against this backdrop, Europe and India have chosen to proceed swiftly, applying an almost cynical pragmatism in turning a blind eye to fundamental issues such as environmental standards and the protection of human rights, in order to secure a mutual economic lung in an era of global fragmentation.

The numbers bet: an analysis of flows and added value

The economic scaffolding of the agreement rests on ambitious projections that aim to rebalance Europe’s weight in South East Asia. The European Commission’s most recent estimates paint a picture of EU GDP growth of around EUR 48 billion by 2032, with an increase in the stock of foreign direct investment (FDI) that could exceed EUR 140 billion. The immediate duty savings for European companies is calculated at around EUR 4 billion per year, a breath of fresh air for sectors that today face prohibitive Indian tariffs.

Going into the details of the flows, the aim is to double the trade in goods, which in 2024 was worth around EUR 120 billion, to over EUR 240 billion in the next decade. The tariff reduction is surgical: in the automotive sector, Indian tariffs will be reduced from the current 110% to a transitional regime of 10% in ten years. Similarly, the wine and spirits sector, historically penalised by 150% taxation, will see a reduction to 20% for high-end products (above a certain price threshold). This is not just a cost cut, but a manoeuvre to shift the centre of gravity of consumption of India’s new middle class – estimated at 400 million people – towards European premium products.

However, behind these numbers lurks a pitfall that we economists cannot ignore: the risk of ‘additive’ offshoring. The stated aim is friend-shoring, i.e. incentivising companies to move their supply chains from China to India for reasons of national security. But the industrial reality is more complex. Multinationals, hardly willing to abandon China’s efficient and deep-rooted production ecosystems, could opt for a ‘doubling’ strategy: keep their plants in Beijing to serve the Asian market and, at the same time, open new lines in India to serve the European market at minimal production costs. The result would not be a reshoring towards Europe, but a further industrial slide towards the subcontinent, leaving the EU with a manufacturing system increasingly exposed to external competition.

The rebus of rules of origin: the defence against ‘Triangulation

One of the most dense and technically complex chapters concerns the Product Specific Rules (PSR ). These rules are the real shield against the risk of India becoming a ‘back door’ for relabelled Chinese goods. The European Union has demanded extremely stringent substantive processing standards: to enjoy duty exemption, a product must demonstrate local added value which, in many manufacturing sectors, must exceed 50 per cent.

A key role is played by the ban on Duty Drawback. This mechanism prevents Indian companies from obtaining a refund of duties paid on imported raw materials or components (e.g. steel or Chinese semiconductors) if the finished product is destined for export to the EU. In economic terms, this means forcing the integration of the supply chain within the subcontinent, making the use of Chinese inputs less convenient. But the challenge now shifts to customs surveillance: in global value chains where a single component may cross three borders before final assembly, the ability to trace the real origin will be a monumental administrative and technological challenge. Without digital and transparent customs cooperation, the risk of ‘leakage’ remains very high.

Italy between instrumental mechanics and the protection of ‘Know-How

In this chessboard, Italy occupies a position of potential, but cautious, euphoria. Our country is the second largest manufacturing producer in Europe and India is the natural outlet for our machine tools. With India engaged in a massive industrialisation plan (the Make in India programme), demand for Italian machine tools, robotics and industrial equipment is set to explode. The elimination of duties allows our companies to compete not only on technological quality, but finally also on price, eroding market share from Asian competitors.

In parallel, the agreement puts an end to a historical scourge for food and luxury exports: the lack of protection for Geographical Indications (GIs). The mutual recognition of more than 160 European GIs – among which Parmigiano Reggiano, Prosciutto di Parma and Prosecco stand out – guarantees that fakes under evocative names can no longer be sold on the subcontinent. It is a victory for our ‘savoir-faire’ that translates into immediate legal protection for billions of euros of exported value. The fashion sector will also see a simplification of import procedures, allowing Italian textile districts to preside over boutiques in Mumbai and Delhi with greater agility.

The ratification test: between pragmatism and populism

The path of the agreement now moves to the palaces of Brussels and, above all, to the national capitals. The European Parliament and the individual member states will be called upon to ratify a text that, unlike the tormented agreement with Mercosur, comes with a not inconsiderable political advantage: the total exclusion of sensitive agricultural sectors.

The decision to leave products such as beef, rice, sugar and dairy products out of liberalisation was a brilliant tactical move. It made it possible to defuse in advance the protests of the European agricultural sector, which in the case of Mercosur had found a very strong political backing. Without the threat of an invasion of cheap meat, the agrarian opposition front was considerably weakened.

However, the path to ratification in 2026 will not be without obstacles

Populist political forces, which feed their consensus by denouncing the harms of unbridled globalisation, will try to shift the debate to environmental and wage dumping. Although India has accepted formal commitments on sustainability, it remains aneconomy with labour protection and civil rights standards that are far removed from those in Europe. The risk is that the public debate will be polarised by those who see the agreement not as an opportunity for expansion, but as a threat to the social resilience of the Old Continent. It will be up to the European ruling class to show that, in a global economy polarised into opposing blocs, customs isolation is not a form of protection, but a condemnation to marginality.

Conclusion: a precarious balance for the future of the Union

In conclusion, the EU-India agreement is a necessary defensive act in an era of uncertainty. It is a union born out of pragmatism and geopolitical necessity, accepting asymmetric competition in order not to be isolated between the Chinese anvil and the hammer of American trade policies.

For Europe, the challenge does not end with the signing of the treaty, but begins with its implementation. The success of this ‘marriage’ will not only be measured in the volume of goods traded, but in the EU’s ability to monitor the rules of origin, protect its quality standards and, above all, turn this geopolitical parachute into a real driver of innovation for its industrial districts.

If we know how to manage the vulnerabilities inherent in this text, India can be the partner that will allow us to balance the weight of Asia; if not, we risk having opened the door to a new giant that, after China, will further test our industrial resilience.