India Now – How the “Mother of All Deals” Reshapes German-Indian Business

The EU and India want to reduce or completely eliminate customs duties on the vast majority of goods traded between them in the future. German companies in particular are likely to benefit significantly from this, and their better access to the Indian market in future.

The sheer scale of the agreement is remarkable: Under the FTA, India is to reduce tariffs on 96.6% of EU exports, including machinery, chemicals, vehicles and numerous industrial intermediate products – all areas in which Germany traditionally has a strong presence. At the same time, India is to receive tariff-free access to 99% of EU tariff lines, which is likely to further increase trade volumes in the coming years. The EU forecasts annual savings of around 4 billion Euros in customs duties and expects its exports to India to almost double by 2032. These are bright prospects for European companies in a global economy that is increasingly impacted by trade conflicts. The FTA is a strategic lever for the German economy in particular: tariffs on machinery, equipment and chemical products will be abolished immediately or gradually. This will measurably reduce the high regulatory and logistical market entry costs for German suppliers to India. At the same time, access to public tenders and technical approvals shall become more predictable – a decisive advantage for German Mittelstand enterprises, whose resources for complex market entry processes are often limited.

Following the successful conclusion of negotiations lasting almost two decades and the signing of the FTA in New Delhi at the end of January, the agreement is now undergoing the formal implementation process, so it may take some time before the FTA can finally enter into full legal force. The legal review of the agreement text alone, known as “legal scrubbing”, could take several months on both the Indian and European sides, and only then will the formal approval procedures begin on both sides, in the EU including approval by the Council of the European Union and the European Parliament. Consequently, German companies will probably have to wait at least another year until early 2027 for the agreement to finally enter into force. This leaves them sufficient time to adapt their market entry strategies for the Indian subcontinent to the new legal situation.

Summary of the key elements of the FTA

• Broad-based tariff reductions: India is reducing or eliminating tariffs on the majority of European export goods, including machinery (up to 44% previously), chemicals (up to 22%) and large parts of the automotive sector.
• Significant relief in the automotive sector: Import duties on high-priced EU vehicles will be gradually reduced from up to 110% to around 10% over five years – and in some cases even earlier within defined quotas. This will also have a significant impact on German OEMs and suppliers.
• Clarification of rules of origin and technical market access: The FTA is expected to create more transparency in certification and standards, thus facilitating compliance with Indian conformity regimes such as BIS (Bureau of Indian Standards) or OTR (Omnibus Technical Regulation) – previously a frequent bottleneck for German companies seeking to enter the Indian market.
• Mutual tariff reductions in labour-intensive sectors: While India gains access for textiles, leather, marine products and gems & jewellery, the EU improves its market access for machinery, automotive, pharmaceutical (intermediate) products and aerospace equipment.

What the FTA means for the German economy in concrete terms

The agreement comes at a time when global supply chains are being reorganised and India is increasingly positioning itself as an industrial manufacturing location of strategic importance. For German companies – especially small and medium-sized enterprises – this opens up a market that is not only large but also becoming increasingly mature in structural terms. Germany is already India’s most important trading partner within the EU and has more than 1,800 active company branches in the country. The FTA will support these activities across the board: lower tariffs, predictable regulatory conditions and more investment-friendly access to a market that is expected to become the world’s third-largest economy by 2030.

How German companies should now align their India strategy

The FTA is not an end in itself, it rather changes the strategic logic of successful market entry for German companies. It should now be clear to many companies that simply exporting to India will no longer be the most efficient way to achieve real success there in the future. Instead, the agreement opens up a new phase of strategic market development in which local manufacturing and genuine value creation integration will become decisive success factors.

India as a sales market – large, growing, diverse

India remains one of the world’s largest domestic markets, with a robustly growing middle class, high industrial demand and massive public investment in infrastructure, energy and digitalisation. Companies from the mechanical engineering, electrical engineering, automation, chemical, automotive, medtech and industrial services sectors will find almost ideal conditions there.

Full potential can only be realised with local production

Exports will become cheaper under the FTA. Nevertheless, India has made it clear that companies creating local value-added should benefit most from the opening of the market. Above all, the lower production costs resulting from the availability of labour and local suppliers are a strong argument for entering the Indian market. In addition, locally manufactured products are approved for the market more quickly due to more feasible conformity requirements, better competitiveness – in particular against Asian competitors – and easier access to public tenders and procurement programmes of the Indian government. All these are good reasons for the German economy to accept this invitation. For industries such as mechanical engineering, automotive, electronics, information and communication technology hardware and chemicals in particular, the presence of a local production or at least assembly unit is increasingly becoming a prerequisite for long-term success in the market.

Utilise local sourcing and dual supply models

The agreement will make it cheaper to import many industrial intermediate products and components. At the same time, however, India is also rapidly developing its own supply base. For German companies, this means cost reductions through local procurement, building resilience in supply chains through risk diversification, and the opportunity to establish India as a second industrial base alongside Europe and, possibly, East Asia. Many companies already use India as a location for their Global Capability Centres (GCC), digital labs or engineering hubs and, under the effect of the FTA, are now likely to increasingly expand these to include production and skilled manufacturing.

Plan compliance and certification early on

The high density of regulations in the Indian jurisdiction is and remains a challenge. Product safety and certification (BIS and OTR) in particular remain a challenging issue for German companies, because despite the FTA, technical standards are not automatically harmonised. The reduction of customs duties is an advantage, but the technical opening of India’s market remains a separate project for the time being. Affected companies should therefore prepare their certification processes in parallel with their market entry, involving local technical partners and accredited testing laboratories in India, and in some cases even in Germany. Strengthening internal compliance structures at the German headquarters should not be forgotten, as small and medium-sized enterprises in particular often still have systemic weaknesses in this area, which can quickly become a problem in a highly regulated jurisdiction such as India.

Strategic partner selection: joint ventures, greenfield or contract manufacturing

The Indian market, with its vast and steadily growing opportunities, rewards above all those companies that think long term. Successful market entry scenarios for German companies should therefore also focus on local joint venture structures and greenfield investments in growth regions, at least as a transition to licence or contract manufacturing with strong Indian partners. A scalable setup that initially allows for small production volumes and can then grow quickly is often crucial. However, establishing long-term successful business relationships with local partners on an equal footing, supported by well-planned and implemented legal structures, is also a decisive success factor in practice for a successful market entry into India.

Conclusion: Now is the time – the right moment for ambitious plans in India

With the signing of the FTA, German companies now have a historic opportunity: for the first time, they can enter a market that is currently unrivalled in terms of its size and dynamism under predictable, favourable and geopolitically stable conditions. However, this requires courage and entrepreneurial foresight, as the real strategic quantum leap will not come from exports, but from local value creation. Those who successfully set the course for India now, with an integrated business model comprising of production, sourcing and local partnerships, will be able to benefit from the new trade architecture between Europe and India for years to come.