India’s negotiations with the European Union on a long-pending free trade agreement have reached a decisive moment, and the timing could hardly be more consequential. Global trade is entering a phase of fragmentation unseen in decades, with tariffs, sanctions and strategic decoupling reshaping supply chains. The United States’ aggressive use of tariffs, including steep duties faced by Indian exporters, has unsettled assumptions about open markets and predictable access. For India, an agreement with the EU is not merely another entry in a growing list of trade deals; it is a strategic hedge against volatility and a signal of intent. The European Union, with its vast market, regulatory sophistication and economic weight, offers India both scale and stability. Finalising the FTA would help Indian exporters diversify away from overdependence on a few destinations, reduce exposure to geopolitical shocks, and deepen integration with a bloc that remains one of the world’s largest consumers and investors. For Europe, the agreement offers a foothold in one of the fastest-growing major economies at a time when its traditional markets are slowing, and its own industrial competitiveness is under pressure.
The economic logic of the agreement is compelling on both sides. Free trade agreements, at their core, are about lowering barriers and aligning rules so that commerce can flow with fewer frictions. For India, tariff reductions in the EU could transform the competitiveness of several labour-intensive sectors that employ millions. Textiles and garments, currently facing tariffs as high as 12 to 16 per cent, have long been disadvantaged compared to competitors such as Bangladesh and Vietnam that enjoy preferential access to European markets. A level playing field would allow Indian manufacturers to compete on quality and scale rather than be priced out by duty differentials. Similar gains could accrue to leather, footwear, pharmaceuticals, steel, petroleum products and electrical machinery. Services, often overlooked in trade debates, are equally important. India’s strengths in information technology, telecommunications, business services and transport could find greater opportunities in Europe if regulatory cooperation and market access improve. For the EU, the benefits are symmetrical but different in composition. European firms stand to gain from increased exports of aircraft and parts, advanced machinery, chemicals, diamonds and high-value manufactured goods. European service providers, particularly in intellectual property, consulting, IT and telecommunications, could also see expanded access to India’s vast and increasingly sophisticated market. The FTA, in this sense, is not a zero-sum bargain but a recalibration of economic ties that reflects the evolving strengths of both partners.
The scale of the relationship underscores why this agreement matters. The EU is already India’s largest trading partner in goods, accounting for a significant share of India’s exports and imports. Two-way trade in goods and services runs into hundreds of billions of dollars, and the potential for expansion is considerable. Europe’s economy, with a GDP approaching that of the United States and a population of over 450 million, represents one of the most lucrative markets globally. India, with its demographic scale and expanding middle class, offers European businesses long-term growth that is increasingly hard to find elsewhere. Investment flows reinforce this interdependence. The EU has been one of the largest sources of foreign direct investment into India, with thousands of European firms operating across sectors ranging from manufacturing and energy to finance and consumer goods. Indian companies, in turn, have invested substantially in Europe, acquiring brands, technology and market access. An FTA would provide greater certainty to these flows by clarifying rules, protecting investments and reducing policy risk. Even niche sectors such as the alcohol trade illustrate the asymmetry and opportunity: Europe exports far more wines and spirits to India than it imports, while Indian exports in this segment remain modest. Liberalisation here would be politically sensitive but economically rational, reflecting a broader truth that trade agreements often require confronting domestic sensitivities in pursuit of longer-term gains.
Yet the long and often frustrating history of the India-EU negotiations serves as a reminder that economics alone do not close trade deals. Talks that began in 2007 stumbled for years over disagreements that went beyond tariffs. Market access for automobiles and spirits, data protection concerns for Indian IT firms, intellectual property rules, labour and environmental standards, and access to public procurement all proved contentious. By 2013, the negotiations had effectively stalled, victims of mistrust and mismatched expectations. Attempts to revive them in the latter half of the last decade made little headway until a post-pandemic reassessment of global supply chains and strategic partnerships injected new urgency. The relaunch of talks in 2022, encompassing not just a trade agreement but also investment protection and geographical indications, reflected a more mature understanding on both sides. India has grown more confident in negotiating comprehensive agreements, as seen in the spate of trade pacts concluded since 2014. The EU, facing its own strategic anxieties about dependence on China and energy insecurity, has become more open to engaging emerging partners on pragmatic terms. The challenge now is to bridge the remaining gaps without letting perfection become the enemy of progress. If concluded, the India-EU FTA would mark not just the end of one of the world’s longest-running trade negotiations, but a statement about how two large, pluralistic economies choose cooperation over fragmentation in an increasingly uncertain world.