The recently concluded free trade agreement (FTA) between India and the European Union, described by both sides as “the mother of all deals”, is far more than a conventional tariff-reduction exercise. Finalised after nearly two decades of intermittent negotiations and against the backdrop of renewed global trade tensions triggered by US President Donald Trump’s protectionist policies, the agreement marks a decisive moment in the reordering of global economic and strategic alignments.
For India, the deal represents a major economic and diplomatic breakthrough. The European Union, with nearly 450 million consumers and some of the world’s highest purchasing power, offers India preferential access to a deep, technologically advanced market.
Indian exports in pharmaceuticals, information technology, engineering goods, auto components and value-added textiles are likely to see immediate gains. Beyond exports, the agreement creates a more predictable regulatory and legal environment for European investors, encouraging long-term capital inflows into India’s manufacturing, renewable energy, green hydrogen and infrastructure sectors.
For the European Union, the motivations are equally strategic. The EU is hedging against uncertainty in its economic relationships with both the United States and China. A more integrated economic partnership with India offers diversification, access to growth markets and cooperation with a likeminded partner on sustainability, digital governance and rulebased trade.
Equally significant is the deal’s impact on global supply chains and other players in the market.
READ MORE: India-EU trade deal to place Pakistan at a competitive disadvantage: PHMA
This agreement naturally raises questions about the implications for India’s relationship with the United States. In practice, the deal is unlikely to cause friction. Washington continues to view India as a key partner in the IndoPacific and an essential counterweight to China.
While US companies may quietly note that European firms now enjoy certain trade advantages, the broader US-India relationship—anchored in defence cooperation, technology partnerships and shared geopolitical concerns—remains intact.
The agreement nonetheless underlines India’s willingness to pursue its economic interests independently amid intensifying great power games.
As Western corporations reassess excessive dependence on China and pursue “Chinaplusone” strategies, India has positioned itself as a credible alternative.
By securing preferential access and clearer rules with the EU, India strengthens its case as a stable, rule-based manufacturing and services hub at a time when supply chain resilience has become a strategic imperative rather than a commercial choice.
China, however, is likely to read the deal with greater concern. Deeper EU–India economic integration marginally weakens China’s centrality in global manufacturing networks and offers European firms an alternative investment destination.
While India has no intention of fully decoupling from China and bilateral trade will remain substantial, the agreement provides New Delhi with greater leverage and strategic maneuverability. In the current geopolitical environment, such options translate directly into power.
The implications for Pakistan merit close attention. Pakistan Hosiery Manufacturers & Exporters Association (PHMA) Chairman (South) has expressed serious concern over the likely impact of the India-European Union Free Trade Agreement (FTA) on the country’s textile and hosiery exports, warning that it would place Pakistan at a structural disadvantage despite its existing GSP+ status with the EU.
He urged the Prime Minister to take immediate notice of the issue and initiate urgent measures on a war-footing to safeguard Pakistan’s exports to the European market.
He said while Pakistan currently enjoys duty-free access to the EU under the GSP+ scheme — similar to the tariff access India is expected to receive under the FTA — the competitive environment remains unequal.
“Pakistan’s GSP+ access is conditional. We are required to ratify, implement, and continuously report on compliance with 27 international conventions related to human rights, labour standards, environment, and governance. India’s access under an FTA does not carry the same level of conditional obligations,” he said.
“The real issue is cost competitiveness. Pakistan’s manufacturing cost is historically the highest in the region. India’s cost of production is significantly lower, which gives Indian exporters a natural advantage once tariff parity is achieved,” he said.
He pointed out that India benefits from cheaper energy, lower financing costs, large-scale manufacturing, integrated supply chains, and stronger logistics infrastructure. These factors allow Indian exporters to price their products more aggressively in the EU market.
“When tariff equality is combined with lower production costs and fewer compliance obligations, the competitive gap widens substantially against Pakistan,” he added.
On account of the massive volume of already existing India- EU bilateral trade, which propelled the free trade deal, Islamabad cannot realistically aspire to an agreement of comparable scale in the near term. But the India–EU deal should not be viewed as exclusionary.
READ MORE: Govt steps up push to expand economic engagement with EU
The EU already stands as Pakistan’s largest export market under the GSP+ framework. There remains scope to deepen ties through sectorspecific trade arrangements, enhanced investmentprotection mechanisms and cooperation in areas such as the green transition, carbon markets and skills development.
However, any meaningful upgrade in Pakistan-EU economic relations will depend less on diplomacy and more on domestic reform. Regulatory unpredictability, inconsistent tax and customs regimes, high energy costs and perceptions of political instability continue to limit Pakistan’s negotiating leverage.
The EU perception is fundamentally that of a rulebased actor, and preferential access is inseparable from compliance, transparency and institutional credibility.
The broader lesson from the India-EU FTA (subject to ratification by EU member states and the European Parliament) is unmistakable. In a fractured global economy marked by trade wars, strategic rivalries and weakening multilateral institutions, countries that offer scale, stability and credible rules will secure partnerships.
Notwithstanding the fact that India’s regulatory frame-work and level playing ground offered to foreign investors has not been encouraging and FTA with EU was struggling for years, India has used this moment of fractured global economy of trade wars to anchor itself firmly within the evolving global economic architecture.
Pakistan has an opportunity to reposition itself, but that window is narrowing—and it will remain conditional on sustained domestic reforms. The government and the private sector have a role to play towards it.
Copyright Business Recorder, 2026
The writer is a former President OICCI; Global Business Leader and Strategic Affairs Analyst
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