India is on the cusp of finalizing a significant trade agreement with the European Union (EU), with negotiations expected to conclude soon. Trade Secretary Rajesh Agrawal has indicated that both sides are "very close" to reaching a deal, potentially before EU leaders attend India's Republic Day celebrations on January 26 and a subsequent summit on January 27. If finalized, this would be India's 19th trade agreement and is expected to significantly boost the country's exports to the 27-nation bloc.
Negotiations between India and the EU for a Free Trade Agreement (FTA) initially began in 2007 but were stalled in 2013 due to disagreements over market access. However, negotiations were relaunched in June 2022, with discussions also covering an investment protection agreement and an agreement on geographical indications.
Recent discussions in Brussels have shown good progress, with fewer outstanding issues remaining. Commerce and Industry Minister Piyush Goyal met with EU Trade and Economic Security Commissioner Maros Sefcovic in Brussels to review the progress of negotiations and provide guidance to the negotiating teams. Prior to this, Commerce Secretary Rajesh Agrawal and Director-General for Trade of the European Commission Sabine Weyand also held discussions to narrow divergences and ensure clarity on outstanding issues.
While the trade deal is expected to be comprehensive, it appears agriculture will be excluded. European Commission President Ursula von der Leyen reportedly told Members of the European Parliament that the agreement would be "without agriculture". This is due to the political sensitivity of the agriculture sector in India, where it employs a significant portion of the workforce. Despite this exclusion, an agreement has been reached to reduce tariffs on European wines and spirits.
The FTA is crucial for strengthening economic ties between India and the EU amid global trade disruptions and geopolitical tensions. High tariffs imposed by the U.S. have added urgency to the deal, as it offers India a strategic opportunity to diversify its export markets and reduce dependence on China. The EU, with a GDP of approximately $19.5 trillion and a population of over 450 million, represents a large and stable export market for India.
The agreement is expected to benefit various sectors in both India and the EU. For India, labor-intensive sectors such as textiles, garments, leather, pharmaceuticals, steel, petroleum products, and electrical machinery are expected to see improved competitiveness in the EU market. The reduction or elimination of tariffs will make Indian exports more competitive. Indian services exports, particularly in telecommunications, transport, and business services, are also expected to grow. The EU, on the other hand, is expected to gain from increased exports of aircraft and parts, electrical machinery, diamonds, and chemicals to India. European services such as intellectual property, IT, telecommunications, and business services could also benefit from expanded access.
In 2024-25, India's bilateral merchandise trade with the EU stood at $136.53 billion, with exports of $75.85 billion and imports of $60.68 billion. The EU is India's largest merchandise trading partner, accounting for approximately 17% of India's total exports. The FTA is expected to further boost two-way trade and investment flows between the two regions.
