Introduction

India''s trade policy stands at a pivotal moment. Tensions with the United States continue, especially with steep 50% tariffs impacting Indian exports. At the same time, India is pushing forward with Free Trade Agreement (FTA) negotiations with the European Union (EU). In an environment of rising global trade disruption — marked by tariff wars, growing protectionism, the introduction of the EU’s Carbon Border Adjustment Mechanism (CBAM), and shifting supply chains — India faces the urgent task of recalibrating its external trade strategy.

India–US Trade Relations: Continued Volatility

High tariffs on Indian goods exported to the U.S. continue to undermine India’s export competitiveness. Despite multiple diplomatic efforts, no substantial progress has been made toward a comprehensive trade agreement. The suspension of India''s Generalized System of Preferences (GSP) benefits in 2019 further harmed key export sectors such as textiles, leather, and engineering. While India and the U.S. have aligned strategically on issues such as defence and advanced technologies, this has not translated into easing trade restrictions. The implications are clear: India must reduce its trade dependence on the U.S. by diversifying its trading partners.

India–EU Trade Relations: Expanding Relevance

Trade and investment flows between India and the EU have grown significantly. In 2023–24, bilateral goods trade reached $137.41 billion, while services trade amounted to $51.45 billion in 2023. Between 2000 and 2023, the EU contributed $107.27 billion in foreign direct investment (FDI) to India, accounting for around 18% of India’s total FDI inflows. The EU has now emerged as India’s third-largest trading partner, following the U.S. and China. The two sides share strategic complementarities in areas like technology development, sustainable growth, green transitions, and supply chain diversification, making the EU a key player in India’s evolving trade strategy.

Progress and Challenges in India–EU FTA Negotiations

FTA negotiations, which resumed in 2022 after a nine-year hiatus, have shown moderate progress. Out of 27 negotiation chapters, 11 have been concluded. However, several issues remain contentious. The EU is seeking greater market access in Indian agriculture and dairy sectors, which raises concerns about the livelihood of Indian farmers. On intellectual property, the EU is pushing for TRIPS+ standards, while India remains cautious, particularly to safeguard its generics-based pharmaceutical industry. The EU also wants broader access to government procurement markets — a sensitive issue for India, which prioritises domestic industries. Furthermore, the EU’s CBAM, set to take effect in January 2026, poses risks to Indian exports of steel, aluminium, and cement. Despite these obstacles, negotiators on both sides are aiming to finalise the agreement by the end of 2025, with India determined to uphold its red lines.

Strategic and Beyond-Trade Dimensions

The evolving India–EU relationship is not limited to trade. The EU plans to unveil a Strategic Agenda Roadmap on September 17, 2025, covering key areas such as defence cooperation, partnerships in advanced technologies like AI and semiconductors, sustainable energy transitions, and critical raw materials supply chains. A high-level India–EU Leaders’ Summit is expected in early 2026, intended to formalise these shared goals. The EU’s outreach signals that it increasingly views India not just as a trade partner but as a strategic actor in the emerging multipolar global order.

Learning from the India–UK FTA

The recently concluded India–UK FTA serves as a useful precedent. That agreement included phased tariff reductions, sectoral safeguards, and commitments on services and digital trade. India can replicate this model with the EU — liberalising selectively while protecting sensitive sectors like agriculture and small-scale manufacturing, thus ensuring a balanced outcome.

Key Challenges and Structural Concerns

Agricultural sensitivity remains a central issue, with Indian farmers opposed to opening domestic dairy and food markets to European imports. Sustainability clauses such as CBAM, as well as labour and environmental standards, could increase compliance costs for Indian exporters. In digital trade, India’s emphasis on data localisation conflicts with the EU’s preference for cross-border data flows. Meanwhile, geopolitical dynamics — especially the EU’s increasing alignment with U.S. policy on China — could restrict India’s space for strategic autonomy.

India’s Broader Trade Diversification Agenda

India is proactively building a diversified trade portfolio. Recent agreements include the 2022 Comprehensive Economic Partnership Agreement (CEPA) with the UAE, boosting sectors like gems, jewellery, and electronics, and the Economic Cooperation and Trade Agreement (ECTA) with Australia, enhancing cooperation in education, wine, and pharmaceuticals. Ongoing trade talks are underway with Canada, the Gulf Cooperation Council (GCC), Israel, and MERCOSUR. Simultaneously, India’s “Act East” policy seeks deeper integration into Asian supply chains through closer ties with ASEAN, Japan, and South Korea. In the long term, India may consider evaluating the benefits of joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to expand market access.

Economic Impact and Implications

A successful EU FTA could significantly boost Indian exports in high-value sectors such as textiles, IT services, pharmaceuticals, and auto components. Moreover, the China+1 strategy adopted by EU companies may lead to increased investments in India as firms seek to diversify manufacturing locations. The EU’s insistence on green supply chains may also catalyse India’s adoption of renewable energy and sustainability standards. However, Indian small and medium enterprises (SMEs) could face adjustment challenges in meeting stringent European regulatory and technical norms.

The Path Ahead

India must pursue a trade strategy that balances ambition with prudence. It should defend sensitive sectors while securing gains in services, technology, and mobility. On CBAM, India should negotiate transitional exemptions or phase-in periods, similar to those obtained from the U.S. India must also build internal competitiveness through investments in logistics, workforce skilling, and regulatory compliance. Additionally, leveraging strategic partnerships in defence and technology can help India secure better trade terms. Finally, deepening ties with the Global South and East Asia will help reduce India’s vulnerability to policy shifts in Western economies.

Conclusion

India’s trade strategy is at an inflection point. As trade tensions with the U.S. continue to cloud the horizon, the India–EU FTA offers a valuable opportunity to deepen trade with a major high-income bloc while broadening India''s global economic footprint. The dual challenge for India is to safeguard its domestic priorities while embracing the opportunities offered by a multipolar, sustainability-focused global economy.