Let's begin with a trick question: can you name India's largest trading partner? While the cognoscenti readily answer with either the United States or China, the correct answer is neither, but the European Union (EU). This poignant fallacy not only reveals a knowledge blind spot among Indians, but it also shows the inadequacy of the soft power of the 27-country economic bloc. The current bilateral and global centripetal forces seem to be pulling India and the EU together. However, the two sides have been here many times during the past two decades, and we need to watch if their shared target of having the long-elusive bilateral Free Trade Agreement signed by the end of 2025 is going to be realised.
The EU is managed by the European Commission (EC) as the executive and the European Parliament in Brussels and Strasbourg as the legislative. The major policy decisions are taken by consensus through the European Council, comprising the Heads of State/Government and their subsidiary structures. EC has an extensive and elaborate bureaucracy that often comes into conflict with the member states' national governments. Since 1999, the EU has had its own currency, the Euro (current value: €1 = ₹104.15), managed by the Frankfurt-based European Central Bank. Currently, 20 out of 27 EU member states have adopted it as their national currency. Most of the EU member states belong to the Schengen Zone - a complex system of common entry visa and open borders encompassing 29 European countries.
Millennia-Old Ties
The economic ties between India and Europe are at least two millennia old. In the first century AD, historian Pliny the Elder lamented that Rome was importing too much silk from India to deplete its gold reserves. This economic crisis led the Senate to subsequently ban the import of Indian silk. However, Emperor Nero refused to ratify the ban, and Indian silk continued to come in. Today, India and the EU are the world's two largest democracies and share several values, such as a tolerant multi-ethnic society, federalism and a multi-tiered economy. They also have internal preoccupations about governance reforms, economic integration, and focus on their respective troubled neighbourhoods. The rapid expansion of the EU during the last three decades and Brexit in 2020 have created new challenges.
India and the EU have long been partners with multiple engagements. Till the year 2000, India was the EU's largest development partner, receiving an annual grant-in-aid of around $100 mn for developmental projects. However, as India has progressed, the development cooperation has lost its significance, to be replaced by trade and investment. According to the UN COMTRADE figures, in 2024, the EU traded $129.4 billion with India, putting it ahead of India's merchandise trade with both the US ($128.9 billion) and China ($118.4 billion). India was the EU's ninth-largest trading partner. We exported $77.1 billion to the EU and imported $52.3 billion worth of goods. In addition, the bilateral Trade in Services in 2023 stood at a record figure of $53 billion (comprising Indian exports worth $30 billion and imports worth $23 billion). Thus, India enjoyed a positive trade balance with the EU in both goods and services. The total bilateral trade has grown by 90% during the past decade, yet it comprised around 2.6% of the EU's global foreign trade. For India, the figure was 22%. While Indian exports to the EU grew by 10.1% in 2024 over 2023, the EU's exports to India notched 0.9% growth.
Major Sectors
Within the EU, India's largest trading partners have been the Netherlands (India's 11th largest), Germany (12th), Belgium (19th), Italy (22nd) and France (24th). Indian exports to the EU were dominated by electrical and electronics ($12.7 billion), organic chemicals ($12.1 billion), fuel ($7.7 billion) and machinery ($5.7 billion). Major exports to India were machinery ($12.5 billion), aircraft ($6.96 billion), electrical and electronics ($5.1 billion) and medical appliances ($3.8 billion). The cumulative EU investments in India are valued at over $117 billion, with around 6,000 European companies present in India employing nearly 3 million workers. Indiaʼs investments in the EU are valued at around $40 billion. In the services sector, India's exports are notably strong in areas like IT, software, BPO, and professional/management services, while EU exports include telecommunications, other business services, and transport. People-to-people contacts have grown but are still below potential, mainly because of visa difficulties for Indians. While over 30 million Indians travelled abroad in 2024, only a million got Schengen visas. The EU countries, too, do not figure at the top of tourists visiting India ever since the UK left the union in 2020. So, it's a testament to their versatility and economic utility that 8.25 lakh Indian citizens lived in the EU in 2023, the largest group receiving EU Blue Cards and intra-corporate transfer permits.
'Gap In Ambition'
India and the EU collaborate through various bilateral bodies, most prominently the India-EU Trade and Technology Council (TTC) established in 2022. It is the primary platform for discussions on trade, trusted technology, and security, with a focus on key sectors like green technologies, digital transformation, and research and innovation. The two sides have long sought to institutionalise their bilateral cooperation through a comprehensive Free Trade Agreement (FTA). While the negotiations in this direction started in 2007, six years and 15 rounds later, these came to a dead end due to "a gap in ambition". The negotiations were resumed in 2022 and have been through 13 rounds so far. In February 2025, EC President Ursula von der Leyen, accompanied by her cabinet of 27 commissioners, came to Delhi for comprehensive bilateral talks. She and Prime Minister Narendra Modi agreed to aim for signing an FTA by the end of 2025.
Since then, the Indian Commerce and Industry Minister has been to Brussels, and a high-level EC team led by Trade Chief Maroš Šefčovič visited Delhi on September 8. On September 17, EC President von der Leyen and its High Representative for Foreign Affairs and Security Policy, Kaja Kallas, adopted a Joint Communication titled New Strategic EU-India Agenda, laying down their priorities and vision for this relationship. It identifies several areas of shared interest and complementary strengths and vows to build on existing ties while addressing areas that present potential for increased engagement. Amid shifting geopolitical realities, it asserted that closer EU-India relations are increasingly vital for strengthening economic growth and security. Similarly, diversification of their supply chains is needed in response to today's uncertain global order.
'Slow' Negotiations
While seeking proximity with India, the EC leadership has not hidden their disappointment at the slow pace of negotiations. The two sides are still some distance apart in their positions on access to agriculture, dairy products, wines, automobiles and parts, services, etc. The EU's Carbon Border Adjustment Mechanism (CBAM) aims to tax carbon-intensive imports starting January 2026, directly impacting India's steel, aluminium, cement, and other key exports.
India regards it as a unilateral and regressive measure and wants this to be exempted under the proposed FTA, or reframe it as part of a broader climate cooperation strategy. While issues of high tariffs (particularly on labour-intensive Indian goods) on mutual export categories cloud the negotiations, the two sides are also at odds about multiple services sector-related issues where India has a strong offensive interest. These include Mutual Recognition Agreements, granting India "data-secure" status for handling personal information of the EU citizens without incurring higher compliance costs and legal hurdles, removal of the EU's remote service delivery restrictions, equivalence of qualifications of professionals, and easier entry and domicile norms. These and other contentious points have derailed similar attempts in the past.
'Planets Aligned' Finally?
As the two sides enter the last quarter of their self-imposed time limit, these formidable outstanding differences are being looked into afresh. The two sides are also contemplating various realistic options, such as initially excluding some sectors like agriculture and dairying, asymmetric implementation of concessions to avoid sensitive sectors being front-loaded, etc.
EC President von der Leyen stated earlier this year that "the planets are aligned" to realise the India-EU FTA this year. Indeed, the two sides are better motivated in this regard by several intrinsic and extrinsic factors. The EU has been having anaemic economic growth and wishes to better leverage India's world-beating growth for trade, investment and high-tech opportunities, particularly with China becoming more restrictive. It is also concerned about the US becoming more protectionistic under Trump, forcing the EU to find other markets. India's recent signing of the FTAs with the UK and the EFTA bloc has also spurred 'FOMO' (Fear of Missing Out). Further, the continuation of the Russia-Ukraine war pushes Brussels towards India as an alternative economic partner.
An FTA Is Absolutely Necessary
On the Indian side, the imposition of a 50% import tariff by the Trump administration on Indian exports and restrictions on F1-B visas to the US have created an urgent need for finding alternatives. Moreover, after losing the Generalised System of Preference access to the EU two years ago, Indian exports are at considerable tariff disadvantage in the EU vis-à-vis Bangladesh, Vietnam and other least developed countries. A comprehensive FTA would help India redress that disadvantage. According to a study, India could lose tariff revenue of up to $32 billion, or 0.8% of the GDP, from the FTA, but would stand to gain even more through higher exports.
The centripetal forces listed above notwithstanding, the two sides would need a rare combination of maturity and flexibility for a win-win FTA. If realised, it would trigger the process of releasing the hitherto untapped potential for greater economic synergy. Relevant to note that from the EU side, any such FTA would require passage through the European Parliament as well as approval of all 27 member states. This could take months, if not years. India would have its own juridical, regulatory and other requirements. If implemented, it would arguably be the largest FTA entered recently by each of the two sides: clearly a prize worth aspiring for, particularly in the current contrarian times.
(Mahesh Sachdev is a retired Indian Ambassador. He currently heads Eco-Diplomacy and Strategies, a Delhi-based consultancy)
Disclaimer: These are the personal opinions of the author
