India-EU Free Trade Agreement: An Unfinished Treaty

India-EU Free Trade Agreement: An Unfinished Treaty

The conclusion of the India-European Union Free Trade Agreement (India-EU FTA) on 27 January 2026 marks a historic shift towards co-operation and strategic partnership. 

Almost 20 years in the making, negotiations between India and the EU for a Free Trade Agreement started in 2007, stalled, and were only relaunched in 2022. Separate negotiations for an Investment Protection Agreement and an Agreement on Geographical Indications (GIs) ran on a parallel track. 

Termed the "mother of all deals" by European Commission President Ursula von der Leyen, the India-EU FTA agreement covers a population of 2 billion consumers, encompassing approximately 25% of global GDP and one-third of global trade. 

The timing of the conclusion of the India-EU FTA is significant, taking place amid rising geopolitical tensions and global economic challenges. The India-EU FTA cements the resurgence of the “China Plus One” strategy, and serves as a strong response to global protectionism and volatility. 

Despite its scale and strategic significance, the India–EU FTA leaves one crucial legal pillar unfinished: the framework for protecting investments.

India-EU FTA Framework 

Access to Goods: The new India–EU FTA represents the most substantial tariff liberalisation India has ever offered. Key metrics: 

• €4 billion annual duty savings for EU exporters
• 99.3% trade liberalisation for the EU
• 96.6% trade liberalisation for India

Access to Services: The India-EU FTA will grant EU companies privileged access to the Indian services market, including key sectors such as financial services and maritime services, while Indian service providers will get a stable and conducive regime in the EU market to supply their services, including IT/ITes, professional services and education. 

Under the FTA, India and the EU are also committed to working together on climate change issues, and the sustainable management of natural resources, workers’ rights, advancing women’s economic empowerment and gender equality. 

The Missing Piece 

While negotiations on the FTA have concluded, the separate Investment Protection Agreement has yet to be agreed upon. This aims to provide investors with a “predictable and secure investment environment”, through commitments on:

• Non-discrimination;
• Protection against expropriation without compensation and unfair treatment of investors and their investments, while preserving the right to regulate, and;
• Transfer of returns.

Parties have also yet to agree on a dispute settlement mechanism to enforce such rules. 

It is likely that negotiations are lagging behind due to India’s Bilateral Investment Treaty (BIT) reforms, which continue to be a work in progress, and the EU’s need for ratification by all 27 member states.  

As discussed in Arbitration Insights Episode 3: Investment Arbitration in India, in 2015, India unilaterally terminated over 70 existing BITs as a consequence of being hit by a wave of investor–state claims, and began major reforms, which re-imagined the bilateral treaty relationship. 

India adopted a new Model BIT in 2015/2016. Some criticisms of the 2015 Model BIT were that it contained a narrow definition of investment; contained an extremely narrow fair and equitable (FET)-type provision; excluded most favoured nation (MFN) clause and taxation measures from the purview of the BIT. In particular, the 2015 Model BIT subjected investors to exhaust local remedies for 5 years before resorting to the ISDS mechanism. The impact of India’s move on foreign investment was mixed, as India remained a high-growth market. 

In 2025, India renewed its commitment towards revamping its bilateral investment treaty to “encourage sustained foreign investment”, but it is too early yet to see what the new equilibrium will be. Considering India’s position in some recent treaties: 

• It is clear from the India-UAE BIT effective from 31 August 2024 that India remains keen on preserving regulatory discretion. Some key terms of the BIT include: maintaining the requirement to exhaust local remedies was (albeit relaxed from 5 years to 3 years), no FET and MFN clauses, a robust carve out for tax (i.e. preventing investors from challenging India’s tax measures), and an express prohibition for third-party funding.  
• It is also notable that the India-European Free Trade Association Trade and Economic Partnership (India-EFTA TEPA) effective from October 2025 does not contain investment protection features, and no ISDS mechanism. Instead, TEPA creates a model that aims to avert the occurrence of investment disputes through the India-EFTA “Desk Model”, and government-to-government consultations for the resolution of differences. 

Given India’s track record, it remains to be seen whether in this Investment Protection Agreement, parties will avoid ISDS provisions altogether and move towards a state-state dispute settlement mechanism, or whether India will rely on entering into new BITs with individual EU member states.

Conclusion 

The India-EU FTA marks a landmark achievement in trade liberalisation, but its long term credibility as a comprehensive economic framework ultimately depends on the completion of the Investment Protection Agreement. In the near term, it is likely to catalyse increased bilateral trade flows, encourage incremental relocation of manufacturing and services to India, and deepen regulatory dialogue between the parties. In the medium to long term, if parties can bridge their differences on investment protection and conclude a balanced Investment Protection Agreement – one that reconciles India’s regulatory priorities with the EU’s demand for investor certainty – the India-EU partnership could evolve into one of the defining economic corridors of the coming decade. Without it, the FTA will still deliver meaningful commercial gains, but may fall short of its potential.