What does the trade agreement with India mean for investors and the economy?

After nearly twenty years of negotiations, the European Union and India have reached a historic free trade agreement. Ursula von der Leyen, president of the European Commission, called it the “mother of all trade agreements.” But what does it mean for the economy, and, more importantly, what should investors make of it? We called Charles Kalshoven, expert strategist at APG, to discuss it.

What is the most important aspect of this trade agreement?

“That might well be the geopolitical dimension: trade as a tool for strategic autonomy. The timing of this deal is no coincidence. India was recently confronted with 50 percent U.S. import tariffs, while the EU is facing the protectionist reflexes of President Donald Trump and a China that is becoming increasingly assertive on the global stage. In this environment, both India and Europe are looking for partners outside their traditional blocs. In recent years, the EU has been building a network of trade relationships with Canada, Japan, Mercosur—though that agreement still needs to be ratified—and now India. This isn’t driven by idealism but by considerations of economic security. It reduces Europe’s dependence on the whims of Washington and the strategic ambitions of Beijing.

India, which traditionally navigates between major power blocs, sees Europe as a stable economic partner offering access to technology, investment, and predictable rules. In that sense, the deal is more than trade alone. It is a geopolitical signal of realignment, showing two democratic powers seeking each other out in a world that is increasingly fragmented.”

Of course, there’s also the mutual economic interest. Is Von der Leyen right to call it the ‘mother of all trade agreements’?

“It’s an agreement of impressive scale, though not one with immediate impact. In quantitative terms, it creates a free trade zone encompassing nearly two billion people and roughly a quarter of global GDP. India is lowering or eliminating tariffs on 96.6 percent of European goods exports, including machinery, chemicals, electronic equipment, and even aircraft—sectors where European companies traditionally excel. That makes the deal economically significant. The Indian economy is also much larger than Mercosur’s and has substantial growth potential, both in trade and in domestic demand.

Still, we shouldn’t exaggerate the effect. Trade between two economies is largely shaped by the so‑called gravity model: trade increases with economic size but decreases with geographical distance. India is far away, and logistical integration remains limited, except for services that require little more than an internet connection. So the agreement will likely lead to gradually increasing trade flows rather than a macroeconomic growth miracle. And India will benefit the most. As the smaller economy, it suddenly gains access to a much larger market.”

What other benefits do both parties gain from the agreement?

“The strength of this deal lies mainly in the complementarities between the two economies. The EU is capital- and technology-intensive, aging, and strong in high‑value manufacturing. India has a predominantly young population, a labor‑intensive economy, and strong capabilities in IT services and pharmaceuticals. This complementarity creates value precisely because the economies differ.

India gets better access to a wealthy consumer market. The EU gains access to a production and services hub that is less competitive than China but more dynamic and demographically resilient. Economic closeness between the two partners opens new opportunities for companies: more collaboration, economies of scale, supply‑chain integration, and lower costs.”

The media talk less about the impact on investors. What will they notice?

“Politicians like to turn this into a big moment, as Von der Leyen did. Investors are usually less impressed, so we shouldn’t expect sudden market spikes. As with previous large trade agreements, like NAFTA, there was no immediate stock market rally. Most information was already priced in. The real effects showed up later and gradually, through investment flows and supply chains.

At the sector level, there is more to expect. European manufacturers of capital goods, autos, chemicals, and luxury products will benefit from lower Indian tariffs. Indian pharmaceutical companies, IT firms, and textile and agricultural producers will gain better access to the European market. India’s pharmaceutical industry—in many ways the “pharmacy of the world”—may also become less dependent on China.

For investors, lower risk premiums matter as well. Trade certainty, investment protection, and clear rules reduce investment risks and often matter more than tariff cuts themselves. The still‑to‑be‑concluded Investment Protection Agreement is particularly relevant here. Another important factor is supply‑chain diversification: European companies can more easily shift production toward India, giving them an alternative to China. That makes supply chains less vulnerable to geopolitical shocks and increases Europe’s strategic flexibility.”

So no big bang for investors?

“No, but it does send a strategic message. These two economies believe in the mutual benefits of international trade and in dealing with each other as equals. For both, gaining new economic partners helps spread risk in times of geopolitical uncertainty. So instead of spectacle, we get predictability, diversification, and new long‑term opportunities. In a world of trade wars, sanctions, and strategic fragmentation, that may be the biggest advantage of all.”