The European Union and India have announced a landmark trade deal after nearly two decades of on-off talks, as both sides aim to deepen ties amid tensions with the US.

“We have concluded the mother of all deals,” European Commission President Ursula von der Leyen posted on X after meeting Indian Prime Minister Narendra Modi in Delhi. He called the deal “historic”.

It will allow free trade of goods between the bloc of 27 European states and the world’s most populous country, which together make up nearly 25% of global gross domestic product and a market of two billion people.

The pact is expected to significantly reduce tariffs and expand market access for both sides.

Von der Leyen and European Council President António Costa are in Delhi, where they met Modi at a bilateral summit.

The European Commission said the agreement would eliminate tariffs on most exports of chemicals, machinery and electrical equipment, as well as aircraft and spacecraft, following phased reductions. Significantly, duties on motor vehicles, currently as high as 110%, would be cut to 10% under a quota of 250,000 vehicles.

The deal is set to lower costs for European products entering India – such as cars, machinery and agricultural food items, after import duties are reduced. Sensitive agricultural sectors, including dairy and sugar, have been excluded.

Brussels said the agreement would support investment flows, improve access to European markets and deepen supply-chain integration.

“This is a historic agreement,” Modi said. “It will make access to European markets easier for India’s farmers and small business. It will also boost manufacturing and services sectors. It will boost innovative partnerships.”

The deal comes as both India and the EU contend with economic and geopolitical pressure from the US.

Delhi is grappling with 50% tariffs imposed by President Donald Trump last year amid talks aimed at securing a trade deal between India and the US that are still dragging on.

Last week, Trump threatened to escalate his trade war with European allies for opposing a US takeover of Greenland before backing off.

That larger geopolitical context was evident in recent statements made by leaders.

On Tuesday, von der Leyen wrote: “We have created a free trade zone of two billion people, with both sides set to benefit. This is only the beginning. We will grow our strategic relationship to be even stronger.”

A day before that Costa had said, without naming the US, that the trade deal would send an “important political message to the world that India and the EU believe more in trade agreements than in tariffs” at a time when protectionism is on the rise and “some countries have decided to increase tariffs”.

Von der Leyen and Costa arrived in Delhi over the weekend and were the chief guests at India’s colourful Republic Day celebrations on Monday.

On Tuesday, the leaders posed for photos with Modi, with the bonhomie between them evident.

The formal signing is likely to take place only later this year, after the agreement is approved by the European Parliament and the European Council.

Alongside the trade agreement, India and the European Union are also advancing separate talks on security and defence co-operation, and climate action.

On Tuesday, India’s Defence Minister Rajnath Singh said he had discussed a range of bilateral security and defence issues with the European Commission’s vice-president Kaja Kallas, including opportunities to integrate supply chains to build trusted defence ecosystems and develop future-ready capabilities.

Reuters news agency reported that the two sides are working on a draft security and defence partnership covering areas such as maritime security, cyber threats and defence dialogue.

“This is a perfect example of a partnership between two major economies of the world… This agreement represents 25% of the global GDP and one-third of global trade,” Modi said while inaugurating the India Energy Week conference on Tuesday.

The EU is India’s largest trading partner in goods, with bilateral merchandise trade reaching $136bn (£99.4bn) in 2024-25, nearly doubling over a decade.

Talks for a deal between India and the EU started in 2007 but stalled in 2013 over roadblocks in market access and regulatory demands. Discussions were formally restarted in July 2022.

The main sticking points were access to India’s automobile market, agriculture goods and carbon-linked tariffs – and analysts will be reading the fine print to see what the final agreement says on these issues.

Officials from both sides worked hard over the past few days to finalise outstanding chapters of the agreement, aiming to wrap it up before the EU leaders’ visit.

The agreement comes as pressure grows on Delhi and Brussels to secure alternative markets for exporters.

In the past seven months, India signed major trade agreements with the UK, Oman and New Zealand, and a 2024 pact signed with the four-nation European Free Trade Association bloc of Switzerland, Norway, Iceland and Liechtenstein has come into effect.

The EU, meanwhile, signed a trade deal with South American trade bloc Mercosur earlier this month after 25 years of negotiation.

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