The mother of all deals: Will SL lead or be left behind?
When India and the EU finally concluded what leaders on both sides have described as the “mother of all trade deals”, it marked more than the end of a long negotiation. It signalled a shift in how global trade, partnerships, and economic geography are being re-imagined in an increasingly fragmented world.
This agreement connects two of the world’s largest economic spaces: a rapidly expanding Indian economy and a European market that remains one of the most sophisticated and standards-driven in the world. But, its implications extend far beyond tariff reductions. It reflects a deeper convergence of interests around supply-chain resilience, market diversification, and long-term strategic stability.
For South Asia, and particularly for Sri Lanka, the deal raises an important question. As global trade routes and partnerships are recalibrated, will the region position itself as a reliable participant in these emerging value chains, or risk being bypassed by faster-moving alignments elsewhere?
Why India–EU deal matters
The India–EU trade agreement did not emerge overnight. Discussions began nearly 18 years ago, and for much of that period, progress was slow. This was not due to a lack of interest, but because both sides were navigating fundamentally different priorities.
The EU has traditionally emphasised labour standards, environmental safeguards, intellectual property protections, and market access in services. India, for its part, has been cautious about opening sensitive sectors, seeking to preserve policy space for farmers, small and medium enterprises, and domestic manufacturing. In an era when global trade was relatively stable, neither side felt compelled to rush a compromise.
That context has changed dramatically
The disruptions caused by the pandemic, followed by geopolitical shocks such as the war in Ukraine, exposed the fragility of existing supply chains. For Europe, the imperative to diversify economic partnerships beyond excessive dependence on a single manufacturing hub became unavoidable. For India, years of structural reforms, expanding market scale, and greater geopolitical confidence altered the balance of negotiations.
It is in this environment that political messaging from both sides has aligned. European Commission President Ursula von der Leyen has framed India’s growth as a stabilising force for the global economy, while Indian Prime Minister Narendra Damodardas Modi has emphasised the agreement’s potential to redefine economic engagement between two major democratic blocs.
The global order itself is undergoing a quiet but profound shift. What was once a broadly integrated trading system is increasingly giving way to a landscape shaped by blocs, selective partnerships, and strategic alignments. The war in Ukraine has hardened economic divisions between Russia and the West, tensions in the Red Sea have exposed the fragility of critical trade routes, and the US and China continue to decouple selectively in technology and supply chains. In this emerging multipolar world, countries are no longer choosing sides wholesale, but building resilient networks that protect their economic interests while managing the geopolitical risk.
The result is a trade agreement shaped not only by economics, but by timing. It reflects a shared recognition that in a more uncertain world, reliable partnerships matter as much as competitive advantage.
Where the IMEC fits
Modern trade agreements increasingly depend on more than tariff schedules. They require physical, digital, and energy corridors that can move goods, data, and power efficiently and securely. It is in this context that the India–Middle East–Europe Economic Corridor (IMEC), enters the picture.
The IMEC is not legally embedded in the India–EU trade agreement, and it should not be presented as such. Rather, it represents a complementary strategic logic. The Corridor concept seeks to link India to Europe through the ME, using a combination of ports, rail networks, digital connectivity, and energy infrastructure. Its objective is to reduce the transit time, lower logistics costs, and mitigate risks associated with congested or geopolitically volatile routes.
The idea gained visibility during the Group of 20 Summit in 2023, but, its relevance has grown as disruptions in traditional corridors, including the Red Sea and the Suez Canal, have highlighted the vulnerabilities of existing trade arteries. In response, governments and markets alike have begun to prioritise redundancy, resilience, and diversification in global supply chains.
India’s approach to the IMEC reflects a broader diplomatic strategy shaped over recent years. Under the stewardship of External Affairs Minister Dr. S. Jaishankar, India has pursued a policy of multi-alignment, maintaining constructive relations across regions with differing political interests. This diplomatic posture has been particularly evident in India’s deepening economic and strategic engagement with Gulf partners, most notably the United Arab Emirates (UAE).
Recent developments reinforce this Corridor-friendly environment. India and the UAE already operate under a comprehensive economic partnership, while the EU has initiated strategic partnership discussions with the UAE. Separately, Gulf states have publicly welcomed closer India–EU economic ties. Taken together, these moves do not constitute an IMEC treaty, but, they do signal growing political alignment around connectivity, trade facilitation, and long-term economic integration.
The IMEC, therefore, should be understood not as a finished project, but as an emerging framework. Its significance lies in how it complements trade agreements like the India–EU deal by providing the infrastructure logic that can translate market access into real economic flows.
How the ‘mother of all deals’ reaches the ground
India’s growing influence in global trade is anchored in a clear shift in economic scale. According to the International Monetary Fund, India has now moved ahead of Japan in nominal gross domestic product (GDP) terms, making it the world’s fourth-largest economy. With growth projected at around 6.8 per cent to 7.4%, India remains the fastest-growing major economy. On this trajectory, Morgan Stanley projects that India is on course to become the third-largest economy globally within the next few years, driven by scale, productivity gains, and deeper integration into global trade.
What gives the India–EU agreement real economic depth is how it lowers barriers across the value chain, not only for large exporters but also for farmers, small manufacturers, and new businesses. Under the deal, the EU will eventually remove tariffs on almost all Indian goods, while modelling studies estimate that bilateral trade could rise by over 40%. Even modest tariff reductions matter because labour-intensive sectors such as textiles and garments, where duties have been around 10%, are dominated by micro, small, and medium enterprises and employment-heavy supply chains. As access improves, demand filters down to farm producers supplying raw materials, small units engaged in processing and finishing, and logistics operators, and service providers involved in certification, standards compliance, and digital trade documentation.
Manufacturing, agriculture and food processing, logistics, and compliance-driven services therefore grow together. This is how a trade agreement translates from headline GDP figures into everyday economic activity, linking export markets to livelihoods, new enterprises, and technology-enabled services rather than remaining an abstract macroeconomic gain.
SL’s strategic window
For Sri Lanka, the India–EU trade agreement is not a distant geopolitical event. It reshapes the economic environment in which Sri Lanka must compete and collaborate in the years ahead. As India integrates more deeply with European markets and connectivity across the region improves, Sri Lanka faces a strategic choice: remain dependent on preferential access alone, or reposition itself as a reliable and value-adding partner within emerging regional supply chains.
Sri Lanka’s comparative advantage lies in complementarity, not competition. Its geographic location, port infrastructure, and long-standing integration into Europe-facing value chains position it well to support India–EU trade flows without diluting its own market identity. Apparel, logistics, compliance services, and agri-processing are sectors where Sri Lanka already has credibility and experience, particularly in meeting the EU’s stringent labour, environmental, and governance standards.
Apparel illustrates how partnership can function without compromising the market position. India exports apparel and textiles to the EU at scale, serving large-volume segments of the market, while Sri Lanka has established itself as a trusted supplier of value-added, compliance-intensive apparel, backed by strong labour standards and long-term buyer relationships. Both countries meet EU regulatory requirements, but, their strengths differ. As India’s access expands under the new agreement, Sri Lanka’s opportunity lies not in rerouting exports, but in deepening its role in design, finishing, specialised manufacturing, and compliance services that European buyers increasingly demand. Integration, in this sense, occurs within supply chains and standard ecosystems, not at customs borders.
This strategic repositioning becomes even more critical in the context of Sri Lanka’s relationship with the EU under the Generalised Scheme of Preferences Plus (GSP+) framework. Preferential access has been central to Sri Lanka’s export competitiveness, particularly in apparel. But, GSP+ is neither automatic nor permanent. It is conditional on sustained compliance with international conventions on labour rights, governance, and social protection, with a decisive review cycle approaching next year (in 2027). In an era where Europe increasingly links trade to sustainability, traceability, and ethical supply chains, credibility matters more than assurances.
It is in this context the leadership of the Tamil Progressive Alliance (TPA) has taken a clear and deliberate position. The TPA leadership has consistently engaged European counterparts on the need to treat GSP+ not merely as a trade preference, but as a framework that must account for structural inequalities and historical marginalisation, particularly affecting plantation and labour communities. These representations have emphasised that compliance must be assessed alongside genuine efforts at inclusion, wage justice, and social protection, rather than through a narrow, box-ticking approach.
Such engagement reflects a broader strategic understanding: safeguarding Sri Lanka’s access to European markets requires more than defending the status quo. It requires aligning trade policy, labour reform, and social justice in a way that strengthens Sri Lanka’s credibility as a partner. As India’s footprint in European markets expands, Sri Lanka’s relevance will depend on whether it can demonstrate reliability, standards leadership, and a willingness to reform where necessary.
The opportunity before Sri Lanka is therefore concrete. By investing in the compliance capacity, skills, and value addition, and by engaging constructively with partners in India and Europe, Sri Lanka can move from a posture of dependency to one of partnership. In a global economy increasingly shaped by trust and standards rather than tariffs alone, this distinction will define whether Sri Lanka is integrated into the region’s future growth, or left navigating its margins.
Trade, culture, and connectivity
Economic integration does not begin with trade agreements alone. It is sustained by trust, familiarity, and long-standing people-to-people connections. In this respect, Sri Lanka’s external relationships, particularly with India and the EU, have acquired renewed strategic depth in recent years.
The direction of Sri Lanka’s current foreign policy has been clearly signalled by President Anura Kumara Dissanayake choosing India for his first overseas visit, followed by Modi’s visit to Sri Lanka. Conferment of the Mitra Vibhushana to India reflected not only diplomatic goodwill, but recognition of a partnership that proved critical during Sri Lanka’s economic recovery. India’s financial assistance, humanitarian support following the Ditwah disaster, and its role as Sri Lanka’s largest source of tourist arrivals reinforced the practical foundations of this relationship.
Sri Lanka, in turn, has reiterated that its territory will never be used in any manner adverse to India’s security, underscoring a shared understanding rooted in geography, culture, and history. Cultural exchanges, from Ramayana-linked heritage to the recent visit of Buddhist relics, further deepen this civilisational continuity.
These connections increasingly translate into economic opportunity. Personal and business ties between Sri Lankans and Indians already underpin trade, investment, and services at the grassroots level. In this context, limited but targeted measures that facilitate mobility and economic participation, including representations made by the leadership of the TPA during recent high-level Indian visits on extending Overseas Citizen of India access to eligible Indian origin communities, have been framed not as identity-based privileges, but as tools to support entrepreneurship, skills mobility, and regional integration, particularly for historically marginalised groups.
A similar dynamic is visible in Sri Lanka’s engagement with the EU. Beyond formal trade arrangements, Sri Lanka benefits from a strong and active diaspora across Italy, France, Germany, and other EU Member States. These communities facilitate business formation, market access, and services trade, translating policy frameworks such as GSP+ into practical commercial relationships. Europe’s own approach to South Asia is also evolving, with a growing emphasis on trade, connectivity, and supply-chain resilience rather than development assistance alone.
Seen together, these strands reinforce a central point. Trade agreements, corridors like the IMEC, and market access frameworks are ultimately sustained by trust, mobility, and inclusion. Cultural familiarity and diaspora networks are not peripheral to economic strategy; they are the connective tissue that allows formal agreements to generate real, lasting economic value.
A region being rewired, a choice that cannot be deferred
The India–EU trade agreement, often described as the “mother of all deals”, marks a broader reordering of economic relationships in an increasingly multipolar world. Together with emerging connectivity frameworks such as the IMEC and Europe’s renewed engagement with South Asia, it signals that trade, trust, and resilience are now being built in parallel. For India, this alignment consolidates its role as a central economic anchor. For Europe, it diversifies partnerships in an uncertain global environment.
For Sri Lanka, the implications are immediate and consequential. Preferential access alone will no longer be sufficient to secure competitiveness. The path forward lies in positioning as a reliable partner within regional value chains, investing in standards, skills, and compliance, and aligning domestic reforms with external economic shifts. Engagement with India and the EU must therefore be strategic, consistent, and inclusive, rooted in both economic logic and long-standing people-to-people ties.
In an era where trade agreements are sustained by corridors, credibility, and connectivity, countries that move early and position intelligently will shape outcomes rather than react to them. Sri Lanka still has that opportunity. Whether it translates potential into partnership will depend on the choices made now, not on the circumstances inherited from the past.
