Introduction
At the World Economic Forum in Davos and during the 2026 India–EU Summit, European Commission President Ursula von der Leyen repeatedly described the long-negotiated EU–India Free Trade Agreement (FTA) as the “mother of all deals,” highlighting its historic potential for global economic integration. German Chancellor Friedrich Merz and EU High Representative Kaja Kallas have both expressed strong optimism about the agreement’s ability to deepen economic ties, diversify supply chains, and promote strategic cooperation between Europe and India.
The FTA, poised to encompass tariffs, services, investment, regulatory cooperation, and market access, will be complemented by a new EU–India Security and Defence Partnership to enhance cooperation on maritime security, cyber defence, and counter-terrorism. For Germany — as Europe’s industrial leader and a key geopolitical actor — these developments offer transformative economic and strategic advantages.
1. Economic Benefits of the EU–India FTA
1.1 Market Size and Trade Potential
India and the European Union together represent a combined market of nearly 2 billion people and almost 25 % of global GDP. Despite this scale, India currently accounts for only about 2.5 % of total EU trade in goods, a fraction of China’s share, signaling significant untapped potential.
Bilateral trade has already shown robust growth, with goods trade reaching approximately €120 billion in 2024, and services trade adding substantial additional volume. Nonetheless, high tariff and non-tariff barriers — notably on automobiles, chemicals, machinery and processed goods — have limited deeper integration.
The FTA’s projected tariff reductions — including on up to 90 % of goods — could unlock considerable export gains for German industry.
1.2 Manufacturing and Export Growth
Automotive Sector
Indian tariffs on imported vehicles have historically been among the world’s highest, often exceeding 100 % for cars. For German automotive giants such as Volkswagen, Mercedes-Benz, and BMW, reduction or phasing out of tariffs would improve competitiveness and demand in the world’s third-largest auto market. Lowering barriers could also drive investment in EVs and component manufacturing, aligning with India’s industrial ambitions and EU climate goals.
Machinery, Chemicals, and Electrical Equipment
German exports of machinery, industrial equipment, and chemicals would benefit significantly from easier access to India’s expanding manufacturing base. Lower tariffs and streamlined regulatory frameworks are expected to increase the cost-competitiveness of German industrial products in India. Especially in factory automation, processing equipment, and precision engineering, the agreement could amplify German market share.
Electronics and electrical engineering, sectors where Germany is globally competitive, are also poised for growth as India expands “Make in India” initiatives and modernizes networks and infrastructure.
1.3 Services, Digital Economy, and Innovation
The EU–India FTA isn’t limited to goods: services liberalization, market access, and regulatory cooperation feature prominently. India’s rapidly expanding IT and professional services sectors, and Germany’s expertise in engineering services, ICT and digital technologies, can foster cross-border collaboration with mutual benefits.
German consultancy and IT firms could see expanded access to India’s market, while collaborative frameworks may facilitate skill transfer, joint innovation projects, and smoother capital flows. Harmonized standards and regulatory dialogues will be instrumental in transforming this potential into measurable outcomes.
1.4 Green Technologies and Sustainability
Germany leads Europe in renewables, clean energy technologies, and climate-friendly innovation. India’s ambitious energy transition goals create demand for solar, wind, energy storage, hydrogen technologies, and grid modernization — all areas where German firms excel.
The FTA’s facilitation of investment and market penetration, coupled with policy coordination on climate goals, could unlock long-term opportunities in sustainable infrastructure, renewable deployment, and carbon management technologies.
1.5 Supply Chain Resilience and Diversification
One of the FTA’s key strategic rationales is its contribution to supply chain resilience. By strengthening economic ties with India, the EU and Germany can diversify away from over-dependence on China or other single sources for critical inputs, technology, and manufactured products. This diversification reduces exposure to geopolitical disruption and aligns with broader European industrial security objectives.
2. Germany’s Strategic Gains from the Security & Defence Partnership
While the FTA addresses economic integration, the EU–India Security and Defence Partnership expands cooperation into areas increasingly central to strategic competition.
2.1 Security Cooperation Framework
Announced by EU foreign policy chief Kaja Kallas, the partnership aims to deepen collaboration on:
- Maritime security and Indo-Pacific stability
- Counter-terrorism and intelligence sharing
- Cyber defence collaboration
- Joint research and industrial cooperation in defence technologies
This represents a qualitative shift from primarily trade-centric engagement to comprehensive strategic partnership.
2.2 Defence Industrial Cooperation and Innovation
Germany possesses a sophisticated defence and dual-use technology base, including advanced naval systems, aerospace technologies, secure communications, and cyber capabilities.
The partnership could:
- Facilitate joint development and co-production of defence systems
- Expand access to India’s defence market for German firms
- Enhance cross-border research collaborations with shared intellectual property frameworks
- Promote secure supply chains for dual-use components
Such cooperation can deepen industrial linkages and create new commercial markets for German defence technology. Moreover, co-development with India reduces unit costs and leverages India’s manufacturing scale, while maintaining European technical standards.
2.3 Cybersecurity and Strategic Technology Collaboration
Cyber defence and strategic technologies are core to both national security and economic competitiveness. Partnerships in cybersecurity standards, secure communications, and digital infrastructure protect both nations against emerging digital threats, while also creating commercial markets for Germany’s cybersecurity and software industries.
Academic and industrial R&D collaborations can further reinforce Germany’s capabilities in AI, secure networks, and critical software systems through aligned research agendas.
2.4 Geopolitical Leverage and Indo-Pacific Engagement
Deepening security ties with India positions Germany and the EU to play a more proactive role in the Indo-Pacific — a region of rising strategic importance. A stable partnership with India enhances Europe’s geopolitical weight, supports rules-based international order, and provides strategic balance amidst intensifying global competition. Germany, by actively engaging through both economic and security channels, enhances its diplomatic influence and global footprint.
3. Implications and Challenges
Despite its potential, the FTA and Security Partnership face implementation complexities:
- Regulatory alignment: Tariff cuts must be complemented by harmonised standards, intellectual property protections, and digital governance frameworks.
- Ratification hurdles: The European Parliament and member states must approve the deal, which can face delays and political resistance, particularly on sensitive sectors.
- Adjustment costs: Germany needs supportive policies for sectors that may face inward competition, such as labour-intensive products or specialised agricultural segments.
Targeted industrial policies, adjustment assistance, skills development, and robust diplomatic engagement will be essential to maximise benefits.
Conclusion
The EU–India FTA, backed by strong advocacy from Ursula von der Leyen, Kaja Kallas, and Friedrich Merz, offers Germany an unprecedented economic and strategic inflection point. By opening access to India’s vast and dynamic market, Germany can advance its industrial exports, services leadership, and green technology ambitions.
Crucially, the alignment with a Security & Defence Partnership broadens the scope from transactional trade to a strategic alliance — deepening cooperation in critical areas like defence production, maritime security, and cyber capability development.
For Germany, this dual framework translates into stronger export growth, diversified supply chains, enhanced innovation networks, and elevated geopolitical relevance — making the “mother of all deals” a genuine game changer for its economy and strategic posture.
References
“India–EU free trade pact: What’s agreed, what’s at stake after years of talks” — Reuters (2026).
“India-EU ‘mother of all deals’: What it might look like” — Hindustan Times (2026).
“Why India is Germany’s Partner of Choice” — GreekCityTimes.com (2026).
“India-EU FTA 2026: India-Germany Trade & Business Opportunities” — India-Briefing (2026).
EU–India strategic framework documents on security and defence cooperation.
“Guns, tech and trust: EU’s defence reset is India’s big moment” — Economic Times (2026).
Additional reporting on EU defence tie expansion (Reuters, 2026).
Image credit : https://x.com/narendramodi/status/1895442093147107598/photo/1
Research Support : ChatGPT
