Mature and pragmatic: On India-EU FTA

The free trade agreement (FTA) between India and the European Union (EU) is significant not just on account of the sizes of the economies involved, but also because it showcases Indian negotiators’ skill and maturity when dealing with a powerful counterparty. India has managed to negotiate favourable terms in each of the previous eight FTAs of the last four years or so, but those were with much smaller economies or groupings. For context, the other eight FTAs together accounted for about 16% of India’s total trade in 2024-25, while the EU itself accounted for nearly 12%. Under the latest deal, the EU will drop tariffs on 99.5% of the items that India exports, with most going down to zero immediately upon implementation. India has given tariff concessions on 97.5% of Europe’s exports. Both sides did well to address issues that were previously intractable. India ensured that strategic agricultural sectors and dairy were excluded from the deal. The EU too managed to exclude several of its sensitive agricultural sectors. What stood out was how the two sides arrived at a workable solution on automobiles. It had been disagreements over auto and auto parts that had derailed negotiations in 2013. The quota-based system now arrived at not only protects India’s domestic manufacturers at the lower end of the price band, but also provides a big opportunity for Europe’s luxury carmakers. Similarly, the quota-based wine tariffs not only give French winemakers an opportunity — a fervent demand on their part — but also provide protections to India’s burgeoning domestic industry. Such a mature and pragmatic approach to persistent hindrances is the way large economies must negotiate with each other. This is further illustrated by the mobility, defence, and technology agreements that were signed separately.

That said, there are some concerns. India could not negotiate any concessions under the Carbon Border Adjustment Mechanism (CBAM). At the moment, this tariff applies to only six products, but is designed to include all industrial goods in some years. The upside is that CBAM applies to all countries equally, and India has done well to negotiate a deal wherein any concession granted to a third country would automatically apply to it as well. Second, if India is to attract foreign investors looking to take advantage of a cheaper export route to Europe, it will have to quickly implement reforms that encourage large-scale manufacturing. Finally, with the FTA document to be translated into 27 European languages before it can be cleared by each country and finally the European Parliament, actual implementation will likely take a while. India must push for as speedy a clearing process as possible. Otherwise, the gains so painstakingly bargained for will be too late to offset the U.S. tariff pain.