By Annunthra Rangan
With the US retreating from multilateralism, India’s strategic positioning will determine whether it emerges as a trade powerhouse or a vulnerable player in the evolving global economy.
India’s trade in goods with the European Union (EU) surged to $137.41 billion in the 2023-24 fiscal year, with $75.92 billion in exports and $61.48 billion in imports, generating a substantial trade surplus for India. As negotiations advance towards a Free Trade Agreement (FTA) aimed for 2025, India must tread carefully, balancing ambition with caution. A sector-specific strategy, rather than an all-encompassing deal, would be better to safeguard India’s critical economic interests.
European Commission President Ursula von der Leyen has hinted at surprises in the FTA talks, but India must ensure that none of these unexpected provisions compromise its strategic sectors. Broad liberalization could expose India’s domestic industries to unfair competition, particularly in manufacturing and agriculture. A smarter approach would focus on targeted collaborations, especially in electric vehicle (EV) battery technology, where both India and the EU stand to gain. India should also press for greater mobility for skilled professionals, offering Europe access to a highly trained workforce at a time when US immigration policies remain restrictive.
However, certain sectors face significant risks under the proposed FTA. The Indian automotive industry, a pillar of domestic manufacturing, could come under severe pressure if the EU’s demand for greater market access leads to unfavourable terms for Indian, Japanese, and Korean players. Additionally, the EU’s carbon tax framework, which acts as a disguised tariff, threatens to erode India’s export competitiveness. Without effective negotiation safeguards, India could find itself locked into an agreement that favors Europe disproportionately.
Agriculture poses yet another challenge. The EU’s heavily subsidized agricultural sector enjoys artificial advantages that Indian farmers lack, making broad agricultural liberalization dangerous. Dutch precision farming techniques and subsidy-backed dairy and horticulture products would easily outcompete India’s fragmented, small-scale farms. A selective approach—perhaps allowing niche European products like wine and spirits to access Indian markets—would protect core domestic agricultural sectors while satisfying some European demands.
Geopolitics also looms large over the FTA talks. India could leverage its growing strategic partnership with the US to moderate tariff concessions to the EU, ensuring that new commitments to Europe do not weaken its ties with Washington. Given the EU’s complex institutional processes, New Delhi may find it more effective to forge bilateral understandings with key member-states like France and Germany, which together account for 40 percent of the EU’s GDP.
Von der Leyen’s recent visit to New Delhi, accompanied by a high-level delegation, underscores Europe’s renewed interest in deepening ties with India. This rekindled interest, however, is not just economic —it reflects Europe’s anxieties over the global order, particularly with Donald Trump’s potential return to the White House. Strained transatlantic relations have made Brussels keen to diversify partnerships, with India emerging as a crucial player.
Technology cooperation is poised to be a cornerstone of the India-EU partnership, with focus areas, including artificial intelligence (AI), clean energy, and digital infrastructure. The upcoming EU-India Trade and Technology Council meeting offers a chance to fast-track collaboration, even as the FTA negotiations remain complex. Both sides understand that economic and technological cooperation is indispensable to their strategic ambitions.
Defense and security cooperation are also rising on the agenda. India’s possible participation in PESCO, the EU’s defense collaboration mechanism, would be a significant strategic step, akin to the EU’s recent defense ties with Japan and South Korea. This would broaden the India-EU relationship, embedding it firmly within the global security architecture.
However, several potential flashpoints could derail the broader partnership. India’s neutral stance on the Ukraine conflict clashes with the EU’s firm pro-Ukraine position, and India’s cautious approach to China may diverge from European policy directions. Meanwhile, India remains wary of the EU’s stringent environmental and labour regulations, especially the carbon border adjustment mechanism. Von der Leyen’s promised regulatory simplifications could help bridge these differences, but much depends on how effectively they are implemented.
Despite these complexities, both sides remain committed to strengthening relations. A joint strategic agenda is expected mid-year, followed by a new roadmap at the upcoming EU-India Summit. New EU High Representative Kaja Kallas has noted the immense untapped potential of India-EU relations—a recognition driven partly by Europe’s evolving strategic calculus in response to external pressures.
Parallelly, India has resumed FTA talks with the UK, after an eight-month pause, adding yet another dimension to its trade strategy. The 15th round of India-UK negotiations comes at a time of economic uncertainty, as US trade policies become increasingly protectionist. Both countries are eager to expedite the agreement, recognizing its mutual economic benefits.
Talks were previously suspended in May 2024, due to general elections in both nations. Now, with the threat of a 25 percent US tariff on steel imports, the UK has heightened interest in securing alternative markets. For India, the UK remains a key market for automobiles, pharmaceuticals, and processed foods.
New Delhi’s trade diversification strategy is evident in its simultaneous FTA discussions with both the EU and UK. With both Europe and Britain eager to strengthen ties with emerging economies, India’s expanding consumer base and growing economic clout make it an indispensable partner.
Von der Leyen’s reference to “intensifying geostrategic competition” highlights the tectonic shifts in global trade. While she avoided directly mentioning the US, Trump’s protectionist stance has upended long-standing trade norms, forcing nations to adapt rapidly. However, this protectionist wave is not solely American—many governments, including India, are recalibrating trade policies to protect domestic industries.
Yet, protectionism is a double-edged sword. Trade barriers often trigger retaliatory measures, distorting global supply chains and undermining industrial competitiveness. While Trump’s policies seek to shield American industry, they also risk isolating the US and diminishing its global economic influence.
The EU, in contrast, has inked trade agreements with South America, Mexico, Switzerland, and is even re-engaging Malaysia after a 13-year gap, underscoring its commitment to open trade. The expanding BRICS bloc, now with Indonesia as its 10th member, further shifts economic power toward the Global South.
Concurrently, India’s deepening trade ties with ASEAN and the UK’s accession to the Trans-Pacific Partnership point to a rapidly evolving trade map.
In this interconnected world, trade cooperation has historically driven prosperity and security. Rising protectionism risks unravelling these gains, injecting new volatility into global commerce. For India, strategically expanding economic ties with the UK, EU, and other like-minded partners will not only strengthen economic resilience, but also contribute to a fairer, more inclusive global trade system.
—The writer is a Senior Research Officer at Chennai Centre for China Studies. Her research interests constitute China-WANA (West Asia and North Africa) relations and human rights