India - EU Free Trade Agreement: Opportunity, Trade-offs, and Open Questions

With the EU–India Free Trade Agreement concluded, this article explores its proposed benefits, underlying trade-offs, and challenges that will shape its real-world impact.

By: Triplicane Satish, Atharv Joshi

After nearly two decades of negotiations, the European Union–India Free Trade Agreement (EU–India FTA) has reached a conclusion. The agreement seeks to provide a comprehensive framework for economic engagement amid heightened uncertainty in global trade and geopolitics, with ambitions that extend beyond traditional tariff liberalisation.

To set the context[1] EU-India trade in 2024 was worth €120 billion, with India importing €49 billion worth of goods from Europe and exporting €71 billion in return. India and the EU remain in each other’s top 10 trade partners list. While preferential access for goods and services is expected to support trade flows, the more consequential question lies in how the agreement’s economic, regulatory, and systemic implications will play out.

This article briefly explores these questions.

The Substance of the Deal: Gains and Trade-offs?

The FTA has been hailed on both sides as a big win in terms of market access. Available information indicates that European products like chemicals, automobiles, machinery, and medical devices are set to enjoy lower tariff costs while entering the Indian consumer market. Other products like wines, spirits, olive oil, and breads will receive lowered customs duties when exported to India. Nearly 96% of EU goods exported today would have to pay lower or no tariffs upon import into India. European exporters will save nearly €4 billion per year in customs duties payments. Interestingly, the EU, which is naturally averse to human capital imports, has granted concessions in the financial services, maritime transport, and IT sectors.

For India, Indian exports of textiles, apparel, toys, gems and jewellery, leather and footwear will receive duty-free access in the European market. This is a marked shift from the reduced customs duty that some Indian products enjoyed under the EU’s Generalized Scheme of Preferences (GSP). At the time of entry into force, around 99% of EU trade will be subject to this duty-free treatment. Correspondingly, the Indian services sector has also received considerable concessions in 144 sectors. This includes entry and stay rights for people-to-people service trade.

Reading between the geopolitical lines

The EU-India FTA negotiations began in 2007 but stalled in 2013 over disagreements on market access. These negotiations resumed only in 2022 at a time when both parties were reassessing their external economic strategies.

In an increasingly fragmented global set-up, uncertainty in international affairs does not always create inertia amongst actors. In fact, it can also be a catalyst. Both India and the EU face tough choices: shifting alliances, supply chain vulnerabilities, and competitive pressures. A fully functional FTA offers economic and strategic leverage, allowing both sides to diversify partnerships and reduce dependence on a narrower set of markets.

Testing ground for multilateralism?

The FTA intends to cover a broad range of topics, including disciplines under negotiation at the WTO, such as digital trade and trade-related climate measures (TrCMs), on which a multilateral consensus remains elusive.

According to the EU Memo, the FTA will incorporate elements that remain under negotiation at the WTO, including Joint Statement Initiatives on Services Domestic Regulation and Digital Trade, even though India is not a participant in these plurilateral processes.

Similarly, the trade, environment, and climate chapter refers to a commitment to combating illegal, unreported, and unregulated fishing, which echoes discussions linked to the WTO Fisheries Subsidies Agreement, which India has not ratified.

Inclusion of such topics in the FTA suggests that bilateral agreements are increasingly being used to explore rules that are difficult to advance multilaterally. Using FTAs as testing grounds can make it easier for governments to try out new ideas in a smaller group, especially on difficult issues where global agreement has stalled. This can help identify what works in practice before rules are discussed at the multilateral level.

At the same time, rules shaped in a smaller group may reflect the priorities of only a limited number of partners and may lead to fragmentation rather than strengthening the WTO system.

Balancing trade, climate, and development objectives

Statements issued by both sides reflect a careful balance of advancing climate action while promoting trade. India’s press release explicitly refers to cooperation on the Carbon Border Adjustment Mechanism (CBAM). References to future most-favoured nation-type assurances for any flexibilities granted by the EU under CBAM sound encouraging, but their true value will ultimately depend on whether the EU extends such flexibilities to other countries. References to cooperation on carbon measurement and accounting methods, recognition of verifiers, and financial and technical assistance could help exporters to meet new requirements. For the EU, the climate and sustainability discussions are presented within a broader framework that also includes cooperation on protecting workers’ rights, women's empowerment, in addition to enhancing environmental protection.

At the same time, it is important to recognise that the EU’s green deal instruments, such as the Deforestation Regulation, Corporate Sustainability Due Diligence Directive, and the CBAM, can impose significant traceability and compliance costs for Indian exporters and suppliers. Whether the FTA helps ease these burdens in practice, or merely reshapes them, will be a critical issue to watch during implementation.

Cautious optimism

The overall mood around the agreement appears to be optimistic, but that optimism is tempered by a touch of unresolved issues and an unfinished agenda. Although the final text is not yet published, some challenges are evident at the outset for policymakers and businesses.

For starters, agricultural products, meat, and dairy products remain sensitive areas for both parties. The EU has specified that it will not step back on the food regulations and product requirements for Indian goods. Meeting these quality requirements has traditionally been a challenge for Indian manufacturers. It will be important to monitor the implementation of commitments in this area.

Rules of origin determine if a product can enjoy duty-free entry in the destination market. For some of India’s competitive sectors, especially textiles and apparel, process rules have been included that are often difficult to utilize. Indian companies exporting to the EU and suppliers manufacturing for European companies, investing in the manufacturing capacity of India, will be vital to utilize these rules of origin. 

Conclusion

The EU-India FTA presents an immense opportunity for both sides, but it also presents critical open questions.

On issues like easing of regulatory complexity, non-tariff barriers, high compliance standards, climate-related commitments, and rules of origin, both parties have differing interests. All of these issues carry adjustment costs that may be felt most acutely by exporters and suppliers operating with limited capacity.

It would be critical to see whether, after the current geopolitical uncertainty settles, the intention to smoothen these issues still remains.

As is said in Sanskrit - संकल्पः सिद्धिहेतुः।(sankalpah siddhihetuh)- A firm intention is the road to success.

In this case, it will be judged by whether it delivers workable market access, manages trade-offs transparently, and answers the open questions it raises through credible and inclusive implementation mechanisms. The real test begins after the implementation.    

[1]The final text of the EU-India FTA is not available yet. The information in this piece is based on press releases from both sides.