Impending India-EU Free Trade Agreement: Key Benefits and Impacted Sectors Explained
India and the European Union (EU) are on the verge of finalizing a long-awaited free trade agreement (FTA) that promises to enhance economic relations between the two entities. This agreement, if signed, will mark India’s 19th trade pact and is expected to significantly increase Indian exports to the EU, which is already India’s largest trading partner. The FTA comes at a crucial time as global trade dynamics shift due to rising tariffs and geopolitical tensions, offering India a strategic opportunity to diversify its export markets.
Importance of the India-EU FTA
The urgency for the India-EU FTA has intensified due to steep tariffs imposed by the United States, which can reach as high as 50%. These tariffs have disrupted traditional trade flows, prompting India to seek new avenues for export growth. The FTA is seen as a vital step in reducing India’s reliance on China and expanding its market presence in Europe. By lowering or eliminating tariffs, the agreement aims to facilitate easier access to the EU market and align regulatory standards.
The sectors expected to benefit from the FTA include technology, pharmaceuticals, automobiles, textiles, steel, petroleum products, and electrical machinery. Labour-intensive industries such as garments and leather are also poised for improved competitiveness in the EU market. Additionally, Indian services exports, particularly in telecommunications, transport, and business services, are anticipated to grow. Conversely, the EU is likely to increase its exports of aircraft, electrical machinery, diamonds, and chemicals to India, alongside enhanced access for European services like IT and telecommunications.
Current Trade Landscape
India’s trade relationship with the EU is substantial, with bilateral trade in goods reaching USD 136.53 billion in the 2024-25 fiscal year. This figure includes USD 75.85 billion in exports from India and USD 60.68 billion in imports from the EU, solidifying the EU’s status as India’s largest trading partner. The EU accounts for approximately 17% of India’s total exports, while India represents about 9% of the EU’s exports.
In the 2023-24 period, India exported USD 76 billion in goods and USD 30 billion in services to the EU. The EU’s exports to India included USD 61.5 billion in goods and USD 23 billion in services. Key destinations for Indian exports within the EU include Spain, Germany, Belgium, Poland, and the Netherlands. With a GDP of around USD 19.5 trillion and a population exceeding 450 million, the EU remains a significant player in global trade.
Challenges in Exports and Imports
India’s major exports to the EU encompass a wide range of products, including petroleum, electronics, textiles, machinery, and pharmaceuticals. However, Indian textile exports face tariffs ranging from 12% to 16%, making them less competitive compared to products from countries like Bangladesh and Vietnam, which benefit from preferential access under existing EU trade agreements.
On the import side, India sources machinery, aircraft, electronics, medical devices, and chemicals from the EU. In the services sector, India exports business, IT, and telecom services while importing intellectual property and IT-related services. Addressing tariff challenges will be crucial for enhancing India’s export competitiveness in the EU market.
Investment and Alcohol Trade
The alcohol trade is another noteworthy aspect of India-EU relations. In the 2023-24 fiscal year, India exported wines worth USD 1.5 million and spirits valued at USD 64.9 million to the EU, while imports included wines worth USD 412.4 million and spirits worth USD 22.3 million.
Investment flows between India and the EU are also significant. Cumulative foreign direct investment (FDI) from the EU into India reached USD 117.4 billion between April 2000 and September 2024, accounting for 16.6% of India’s total FDI equity inflows. Approximately 6,000 EU companies operate in India, while India’s outward FDI to the EU was valued at about USD 40.04 billion during the same period. The Netherlands, Germany, France, Spain, and Belgium are among the largest EU investors in India.
Progress on FTA Negotiations
Negotiations for the India-EU FTA began in 2007, with multiple rounds held until 2013. However, discussions stalled due to disagreements over tariffs on automobiles, wine, and spirits, as well as issues related to data security, intellectual property rights, and public procurement. Although efforts to revive talks between 2016 and 2020 yielded limited results, momentum returned after 2020. In June 2022, India and the EU officially re-launched negotiations, which now encompass a Free Trade Agreement, an Investment Protection Agreement, and an Agreement on Geographical Indications.
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