In a whirlwind of trade developments across continents, India has found itself at the heart of two major international economic shake-ups: a sweeping overhaul of its tax treaty with France and the looming threat of steep import tariffs imposed by Mexico. Both moves, unfolding in December 2025, signal a pivotal moment for India’s global trade relationships, with billions of dollars and the fate of key industries hanging in the balance.
According to Reuters, India and France have agreed on the terms of a new tax treaty, set to be signed in the coming weeks, that will fundamentally reshape how French investors and companies are taxed in India. The deal, years in the making, is designed to modernize bilateral tax arrangements by adapting to global standards on tax transparency and closing loopholes that have led to protracted disputes and uncertainty.
Bilateral trade between the two nations stood at a robust $15 billion last year, and the relationship has only grown warmer, with Indian Prime Minister Narendra Modi and French President Emmanuel Macron spearheading efforts to deepen economic ties. The new treaty is expected to boost the flow of investment, technology, and personnel between India and France, while also providing much-needed tax certainty for businesses on both sides. As one Indian government document from August put it, “The proposed amending protocol will boost flow of investment, technology and personnel between India and France, and will provide tax certainty.”
The changes aren’t just technical—they have real consequences for the bottom lines of some of France’s biggest corporate players in India. Companies like Capgemini, Accor, Sanofi, Pernod Ricard, Danone, and L’Oreal, all of whom have expanded their footprint in India in recent years, are set to be directly affected. Capgemini Technology Services India, for instance, declared a whopping $500 million dividend in 2023-24, according to regulatory disclosures.
Under the revamped treaty, French companies holding more than 10% in any Indian entity will see the tax on dividends they receive slashed from 10% to 5%. But for minority French shareholders—those holding less than 10%—the dividend tax will jump from 10% to 15%. This shift could have a significant impact, as more than 40 French companies currently hold minority stakes in Indian firms, and French foreign portfolio investors (FPIs) now own $21 billion worth of shares in Indian companies—a third higher than just a year ago.
But perhaps the most consequential change is the removal of the 10% threshold for capital gains tax. Previously, India could only tax share sales by French entities if they held more than 10% in an Indian company. Now, the new treaty gives India full source-based taxation rights on equity share sales, regardless of the stake held. “This will impact French FPIs in India and also French companies holding minority interest in Indian companies. These investments were not subject to tax under the current treaty,” explained Riaz Thingna, a partner at Grant Thornton Bharat LLP, to Reuters.
Another notable adjustment is the limiting of tax on fees for technical services. India has agreed to France’s request to tax only those services where technical know-how is actually transferred—removing most routine consultancy and support services from the tax net. This, according to Thingna, “can help French companies that render services like design consultancy, cybersecurity and market research.”
One of the thorniest issues in the negotiations was the so-called “most favoured nation” (MFN) clause, which historically gave France certain tax advantages. According to Indian government documents, differences over how to interpret this clause were a key reason for the renegotiation. A landmark Indian Supreme Court decision in late 2023 ruled that countries could not automatically claim lower tax rates if India later struck more favorable deals with other OECD nations. The ruling caused considerable anxiety in France, as one official told Reuters: “This decision led to a sharp deterioration in the legal and economic security of French companies in India. The potential additional tax cost was estimated at 10 billion euros for existing contracts alone.”
To resolve the dispute, India and France have agreed to delete the MFN clause from their treaty, ending years of legal wrangling and uncertainty. The move, according to Indian officials, is intended to put an end to “tax uncertainty and protracted litigation.” The treaty is now pending final approval by Prime Minister Modi’s cabinet.
While India is tying up loose ends with France, it’s also facing a fresh challenge from across the Atlantic. Mexico has announced its intention to impose steep import tariffs—ranging from 5% to a staggering 50%—on about 1,463 tariff lines from countries without free trade agreements, including India, China, South Korea, Thailand, and Indonesia. The tariffs, set to take effect on January 1, 2026, could hit Indian exporters hard, particularly in sectors like automobiles, machinery, electronics, pharmaceuticals, textiles, and plastics.
The move has not gone unnoticed in New Delhi. The Indian Embassy in Mexico raised concerns with Mexico’s Ministry of Economy as early as September 30, 2025, seeking special concessions to shield Indian exports from the new duties. “India values its partnership with Mexico and stands ready to work collaboratively toward a stable and balanced trade environment that benefits businesses and consumers in both countries,” an Indian official told The Economic Times.
High-level talks have already begun, with Commerce Secretary Rajesh Agrawal meeting Mexico’s Vice Minister of Economy, Luis Rosendo. Technical meetings are expected to follow as both sides search for common ground. In the meantime, Indian officials are closely examining the details and implications of Mexico’s tariff revisions, determined to protect the interests of Indian exporters while keeping lines of dialogue open. “India reserves the right to take appropriate measures to safeguard the interests of Indian exporters, while continuing to pursue a solution through constructive dialogue,” the official added.
Industry groups are sounding the alarm. Ajay Sahai, Director General of the Federation of Indian Export Organisations (FIEO), warned that Mexico’s decision is a serious concern, especially for sectors that have invested years in building supply chains. “Such steep duties will erode our competitiveness and risk disrupting supply chains that have taken years to develop,” Sahai said. The Auto Component Manufacturers Association (ACMA) echoed these worries, noting that domestic manufacturers will face increased cost pressures if the tariffs go forward.
India’s exports to Mexico stood at $5.75 billion in 2024-25, while imports were $2.9 billion—a sizable trade relationship now under threat. The government’s official position is clear: unilateral MFN tariff hikes, especially those imposed without prior consultation, are at odds with the spirit of cooperative economic engagement and the principles of predictability and transparency that underpin the global trading system.
As the clock ticks toward the new year, India’s trade negotiators find themselves juggling both opportunity and risk. The revamped treaty with France promises greater clarity and fairness for investors, even as the country braces for potential disruption in its trade with Mexico. The coming weeks will be crucial for Indian exporters, policymakers, and their international counterparts as they navigate this rapidly shifting landscape.
With billions at stake and global supply chains in flux, India’s ability to balance assertiveness with diplomacy may well determine the future of its economic partnerships on both sides of the globe.
