Sunday, 23 Mar, 2025
By: Damini Mehta
Source: Getty
The broader geopolitical landscape could influence negotiations. With global trade policies shifting and other major economies—such as the US and China—adopting protectionist measures, India and the EU will have to ensure that the FTA remains beneficial amid evolving economic conditions.
Strengthening Economic Ties & Expanding Trade Relationship
India and the European Union (EU) are accelerating their negotiations to finalize a long-awaited Free Trade Agreement (FTA) in 2025. Both sides are committed to sealing the deal, aiming to enhance trade and investment flows between the world's fifth-largest economy and the 27-nation bloc. The agreement, once concluded, is expected to reshape trade relations, significantly boosting bilateral trade, which has already witnessed remarkable growth over the past decade.
The EU is currently India's largest trading partner, accounting for 14.4% of India’s total trade in goods. In the fiscal year 2023-24, bilateral trade in goods between India and the EU reached $137.5 billion, reflecting a 90% increase over the past ten years. Trade in services has also been expanding, growing from €30.4 billion in 2020 to €59.7 billion in 2023. Additionally, the EU’s foreign direct investment (FDI) stock in India stood at €108.3 billion in 2022, underscoring the growing economic interdependence between the two partners.
Why has a deal remained elusive so far?
While both sides acknowledge the potential benefits of the FTA, the negotiations have been challenging, given their differing priorities. The EU is particularly keen on reducing India’s high import tariffs on automobiles, alcoholic beverages such as whiskey and wine, and various industrial goods. Currently, India imposes tariffs ranging between 100% and 150% on these products, making it difficult for European exporters to compete in the Indian market. In addition, the EU wants stronger investment protection measures, ensuring that European companies operating in India can repatriate profits without major bureaucratic hurdles. Environmental and labor standards are also high on the EU’s agenda, with Brussels insisting that India commit to stringent sustainability norms as part of the deal.
On the other hand, India is focused on securing greater access for its pharmaceuticals, textiles, and leather products in the EU market. The Indian government is also pushing for recognition as a "data secure" country, which would enable smoother cross-border data flows—a crucial factor for India’s rapidly expanding IT and digital services sectors. Another major demand from India is the relaxation of visa norms for Indian professionals working in the EU, which would allow greater mobility for service sector employees.
How and who will the FTA benefit
The successful conclusion of the FTA is expected to significantly reshape India-EU trade dynamics. With lower tariffs and fewer trade barriers, bilateral trade could potentially double within five years. Indian businesses, particularly in pharmaceuticals and textiles, would gain greater access to the EU market, while European exporters—especially in the automobile and alcoholic beverage sectors—would be able to establish a stronger presence in India. Investment flows are also likely to surge, as European businesses would have stronger legal protection, encouraging them to invest more in India’s growing economy.
Foregone Conclusion?
Despite the optimism surrounding the agreement, several challenges remain. One of the biggest hurdles is aligning regulatory standards between the two economies, particularly on issues such as data protection and environmental sustainability. The EU’s insistence on higher labor and environmental standards has been met with resistance from Indian negotiators, who argue that such commitments could place additional burdens on Indian industries. Another contentious issue is agriculture, as India is wary of opening its markets to highly subsidized European agricultural products, fearing negative consequences for its domestic farmers.
Additionally, the broader geopolitical landscape could influence negotiations. With global trade policies shifting and other major economies—such as the US and China—adopting protectionist measures, India and the EU will have to ensure that the FTA remains beneficial amid evolving economic conditions.
The India-EU Free Trade Agreement represents a significant opportunity for both economies to deepen their economic engagement. While challenges persist, the commitment from both sides to finalize the agreement in 2025 reflects a shared understanding of the strategic and economic benefits it offers. If successfully implemented, the FTA could mark a new era in India-EU trade relations, fostering growth, investment, and job creation across both regions.
