The India-EU FTA: A Strategic Partnership in a Fragmented World

The European Union (EU)-India Free Trade Agreement (FTA) has gained momentum in recent times after enduring a lackluster relationship for over two decades since the signing of the EU-India Strategic Partnership in 2004. India and the European Union are actively working towards positively concluding a free trade agreement by the end of 2025. The revival of FTA has been in the works from 2022 when the overly stalled negotiations were resumed. This comeback comes at a critical juncture in a year marked by geo-political shifts and realignments. This FTA transcends trade and reflects strategic convergence and economic interdependence. This article aims to put into perspective the significance of this partnership for both the EU and India. It brings into picture the geo-economic trends, the China factor, and the shifting US policy under the Trump administration as a disruptor. It will draw attention to the items on the negotiation table and the time taken for conclusion of the FTA. The section comprising economic impact for both economies in case of a successful FTA settlement will examine the sectoral impacts as well as economic gains and losses. Several challenges loom over the current political economic landscape. The concluding section will examine the possible outcomes and milestones the upcoming years might have in store for the EU-India economic partnership that has a possibility of expanding into an overarching relationship based on democratic ideals.

Historical Background and the Revival of the FTA

The India-EU relationship can be traced back to the early 1960s, with India being amongst the first countries to establish diplomatic relations with the European Economic Community. Relationships developed over the years, culminating in a formal Strategic Partnership in 2004 and the start of talks for a Bilateral Trade and Investment Agreement, or India-EU FTA, in 2007. The world’s two largest democracies already have a sizable trade volume. The EU is India’s second-largest trading partner while India is its ninth largest partner. Bilateral trade between India and the EU reached over US$137.41 billion in FY 2023-24. The EU accounted for 12.2 percent of total Indian trade and 2.2 percent of the bloc’s trade was contributed by India in 2023, the highest in a given year. Negotiations halted in 2013 due to differences over the level of opening up of the markets. The negotiations were resumed in June 2022 for a comprehensive trade agreement after a long-drawn-out duration of eight years. The renewed talks assume significance as both the world’s largest democracy and the 27-nation Union are looking at an early harvest trade agreement by July. The ongoing negotiations cover extensively about 23 policy areas and chapters,, Trade in Goods, Trade in Services, Investment, Sanitary and Phytosanitary measures among others. The sheer volume of their trade demonstrates the dependence and necessity of a robust bilateral trade relationship.
Since early 2023, when preferential tariff protection under the Generalized Scheme of Preferences (GSP) was suspended, India has solely traded with the EU under the WTO’s Most Favoured Nation (MFN) principle. In the meantime, preferential tariffs are enjoyed by competitors such as Bangladesh, Sri Lanka, and Vietnam. To re-establish the benefits conferred by GSP, a comprehensive FTA would provide India with several competitive advantages.

Commerce and Industry Minister Piyush Goyal and the European Commissioner for Trade Maros Sefcovic met several times aiming to fast-track the conclusion for a free trade agreement. India has already concluded an agreement with the European Free Trade Association countries which include Iceland, Liechtenstein, Norway and Switzerland in March 2024 and the UK in May 2025. The president of the EU commission, Ursula Von Der Leyen along with almost all of the EU’s college of commissioners set the tone in the landmark official visit to India in February 2025 underscoring the India-EU ties as natural partners indicating this partnership as a defining one of the century.

Strategic Significance for India and the EU

The FTA comes at an opportune time for both the actors, which can help alleviate the fragilities encountered in the global economy. With the threat of Trump’s tariffs and China’s growing dominance, the multilateral trading system established by the World Trade Organisation (WTO) and the rules-based order are being threatened by these actors who are behaving as trade disruptors. Thus, it is high time for India and the EU to reclaim the ability to conduct free and open trade beneficial to both parties.

India is an attractive partner for the EU to pursue its goal of de-risking and reducing its dependence on China. If concluded, the free trade agreement would be the EU’s first one with an emerging economy. It would strengthen the EU’s role on global trade governance and foster partner countries’ integration into the world economy. India has emerged as the most promising nation among others- Brazil, China, and the US, in a recent business climate survey of European machinery and equipment manufacturing companies, which was carried out by a German organization. The poll indicates that European machine makers have an even more optimistic perspective for the future of Indian businesses.

For India, the EU is a significant export market and a major source of investment. It will provide entry to the European single market system and the establishment of European companies in India can provide a competitive edge as envisaged by India’s emerging economy goals. It will help achieve India’s efforts in transferring technology, increasing technical cooperation, and attracting investment flows. India is looking towards the West for the purpose of building resilient supply chain networks. Indian businesses are looking for opportunity, access, and predictability especially in exports of ready-made garments, pharmaceuticals, steel, petroleum products, and electrical machinery wherein India enjoys competitive advantage. It will boost PM Modi’s “Make in India” campaign and his ambition to place India as a regional leader in the Indo-Pacific countering Chinese dominance in the global manufacturing arena.

Strategic convergence as displayed in the FTA is indicated by the autonomous and independent foreign policy pursued by the EU and India. Trade, investment, and value chains are all intrinsically linked wherein FTAs form a part of the bigger picture. A strong link between these areas is required to produce favourable outcomes. China’s totalitarian governance and the United States’ expansive power projection pose challenges to peace, stability, and international order. According to a study conducted by the Jacques Delors Institute and Observation Research Foundation, India and the EU have much to lose if a conclusive FTA does not take effect. It shows the EU’s trade openness ratio in 2021 was 43 percent compared to 46 percent for India. The findings indicate they are both trade dependent compared to the US (26 percent) and China (39 percent). The conclusion of the FTA would send clear signals to the administrations in Beijing and Washington about the changing tides in geoeconomics.

Trade Items- Tariffs and Non-Tariffs

The FTA brings an equal focus on tariff and non-tariff barriers which is essential to give way for a comprehensive agreement. The agreement laid out three verticals for tackling the negotiations comprising trade, investment, and geographical indications. This can be attributed to the several sticking points related to investment protection, agriculture products and customs. There is an increased focus on reaching for the low hanging fruits to reach consensus which have found their place in the early harvest agreement. The chapters that have been finalised include Intellectual Property Rights (IPR), rules of origin, sanitary and phytosanitary standards and dispute settlement mechanism among few others. The EU seeks significant tariff reductions on products like automobiles, medical devices, wines, meat and poultry, which are undergoing discussions in the early harvest agreement. The pace of the FTA seems to be taking speed with several items being agreed upon.

A few items appear at the heart of the major bone of contention between India and the EU. For the EU, dairy and agricultural products have been designated as a “no-go” area by India due to socioeconomic sensitivities and livelihood concerns of the farmers. Meanwhile, the insistence of India relating to Mode 4 elements under the general agreement of trade in services (GATS) of the WTO seems to not sit right with the EU. This includes the movement of skilled professionals gaining entry into the European labour market. Another major bottleneck in negotiations is the Union’s Carbon Border Adjustment Mechanism (CBAM), which aims to impose tariffs on imports based on carbon emissions generated during their production. For India, this could disproportionately hit its heavy industry producing goods such as cement, fertilisers, iron and steel. The EU-Mercosur FTA can also be referred to draw useful insights on addressing non-tariff issues. The successful creation of the Trade and Technology Council (TTC) in 2022 can aid sector-specific talks focussed on delivering an effective outcome.

Negotiations

The talks have been renewed with an urgency which is highlighted by the flurry of meetings between Commerce and Industry Minister of India, Piyush Goyal, and the European Commissioner for Trade, Maros Sefcovic. Negotiations on tariffs and non-tariff barriers have been prolonged due to persistent disagreements on both sides. The EU has pushed for significant liberalisation of India’s manufacturing and services sectors, a demand that continues to face resistance from influential domestic industry lobbies and a broader protectionist-nationalist outlook within India’s political and bureaucratic establishment. Compounding these challenges is the EU’s expanded sustainability agenda, which has grown considerably since 2013 and now includes ambitious environmental, labour, and climate-related standards—further complicating consensus on regulatory alignment and market access.

In this context, Robert Putnam’s two-level game theory offers a valuable framework for analysing how internal factors shape the foreign policy of an international actor. It reveals that the fate of an international negotiation is tied to the strategic advantages and constraints imposed by domestic politics on the negotiating parties. It comprises two levels— Level I is the international stage, where government representatives negotiate with each other and Level II is the domestic stage, where governments are required to secure approval from various internal actors like parliaments, interest groups, political parties and the public for the purpose of finalising the negotiation. A successful agreement must satisfy both the international negotiators and the domestic constituencies of each party. The set of possible agreements that can win approval at home is called the “win-set». The larger the overlap between the win-sets of both sides, the more likely a deal can be reached.

For the EU, Level II actors include the European Commission, Parliament, and all 27 Member States. Ratification demands a mixed-agreement procedure—consent by the Parliament and unanimous approval by national governments. The reason for greater emphasis of the EU on human rights and environmental standards in international trade agreements is due to European’s Parliament’s outlook on envisaging trade not as an end in itself, but as a tool for the promotion of European values. Powerful lobbies (e.g. automobiles and retail sectors) push for deep market access and strong IPR, yet some Member States resist traditional investor state dispute settlement clauses and expansive Mode 4 mobility. This dual ratification narrows the EU’s win-set in agreements that align the Commission’s priorities.

It is estimated that the FTA would significantly lower the tariff income for India which approximately amounts to $32 billion and represents 1.8 percent of Indian GDP. While liberalisation of the agricultural sector and automobile industry poses an economic risk that could have a negative impact on the most vulnerable and marginalised groups in Indian society. Hence, the EU-India FTA can be viewed as asymmetrical due to the reality of the EU as a bloc of industrialised countries with a comprehensive welfare system whereas India’s developing economy is more susceptible in case of disproportionate trade provisions. This theory showcases that greater the autonomy of central decision-makers from their domestic constituents, the bigger is the win-set and likelihood of concluding a deal.

Outcome of the FTA and Policy Recommendations

Although trade in goods has grown by 90 percent in the past decade, due to the snail-paced nature of trade negotiations, optimal utilisation of this opportunity has been hindered. A successfully concluded trade agreement will unlikely reap gains in terms of income, employment, and welfare. India has received far more exports from its FTA partners than vice versa, particularly when compared to East Asian economies. There is a significant trade deficit India faces and its FTA optimisation remains abysmally low at around 25 percent (In the period between 2017 and 2022, India’s exports to its FTA partners increased by 31 per cent, while its imports increased by 82 per cent) while the required utilisation for developed countries typically ranges between 70-80 percent.

To resolve these inefficiencies, certain policy recommendations are highlighted below.

• To offset the loss of tariff revenues, India should negotiate for the implementation of phased liberalisation with safeguard clauses allowing flexibility in imposition of duties in case of significant import surges causing distress to industries. (e.g. steel, chemicals and textiles)
• Ramping up capacity building programmes and addressing the inadequate representation of industry experts and stakeholders’ consultations can facilitate sufficient usage of the burgeoning policy space in India.
• India’s minimal FTA optimisation can be countered through Production Linked Incentive (PLI) schemes enhancing competitiveness, attracting foreign investment and supporting MSMEs.
• Increased cooperation in technological advancements, forging FTAs combined with technology diffusion can yield substantial transfers of technical know-how. Earlier this year, France and India co-chaired the Artificial Intelligence Action Summit recalling their joint commitment to promote safe and secure digital technologies, and building trustworthy artificial intelligence systems. This technology can be applied to facilitating supply chain diversification and trade activities.
• The WTO principle of special and differentiated treatment of developing countries implies that an asymmetric tariff liberalisation, that is, one that accommodates India’s interests, must be implemented. To secure European values, it is important to ensure the application of core principles of the ILO, European Green Deal provisions, the “Farm to fork” strategy and Agenda 30 goals.
• The new EU Strategy for Enhanced Partnership, released in 2022, can assist in resolving controversial issues on sustainability. This approach suggests that for intermediate goals, shared priorities, specific timelines, and support options should be established.
• Agricultural interests can be adequately carried forward through GIs for special quality products while supporting each other’s interests in certain segments. For example, individual Indian GIs in a relevant agricultural area could be accompanied by EU support programmes as part of broader economic development.
• To guarantee India’s goals in the field of trade policy, SMART–Strategically Managed, Algorithmically Rebalanced Treaties, free trade agreements must be concluded, as they provide a vision for a new trade architecture. A forward-thinking architecture that transforms treaties into dynamic systems of delivery rather than static declarations of purpose.
• Previously concluded FTAs of India with Australia and UAE can act as examples. Crucial developments boosting trade infrastructure and setting fast track mechanisms to dispute settlement and digitising procedures with the UAE were carried out. Starting points for negotiations in the agriculture sector can be referred to the Australian FTA, for example in the dairy sector, by requiring only low tariff reductions of India or longer phasing-in periods for tariff cuts, as well as through possible safeguard clauses in the event of an increase in imports.

Conclusion

India’s Trade Minister Piyush Goyal has stated that the friendship with the EU is truly phenomenal, one that aligns with India’s long-term vision for being a Vishwamitra- Friend of the World. Trade and economic areas of cooperation that are explored by India and EU also include a fillip for the connectivity initiative— IMEC as well as for advancing discussions on a bilateral and defence partnership agreement. After all, Von Der Leyen’s optimistic remark “The planets appear to be aligned this time around” signals the renewed momentum in what has long been described as a decades-old ‘loveless arranged marriage’ between India and EU.

(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct).