GS Paper II: International Relations; International Organisations and Institutions; Government Policies and Interventions; International Treaties and Agreements; Impact of Foreign Policy on India’s National Interests.
Key Terms
For Prelims:
European Union; Free Trade Agreement (FTA); TRIPS; G20; G7; Operation Atalanta; Indo-Pacific Oceans Initiative (IPOI); International Solar Alliance; Quality Control Orders (QCOs); Non-tariff Barriers; Schengen Area.
For Mains:
Salient features of the India–EU Free Trade Agreement and overall India–EU relations; opportunities and challenges arising from the India–EU FTA; and the way forward.
Why in News?
India and the European Union (EU) have successfully wrapped up negotiations on a comprehensive Free Trade Agreement (FTA), representing a significant advance in bilateral economic engagement. The EU is India’s 22nd FTA partner.
Before implementation, the agreement will undergo several procedural steps:
- Legal vetting (legal scrubbing)
- Finalisation of language
- Translation into official EU languages
- Ratification by the European Parliament and all 27 EU Member States
Only after completion of these stages will the FTA come into effect.
Image source: The Hindu
Overview of the India–EU FTA
The agreement offers substantial market access for Indian goods and services, particularly in labour-intensive industries. Simultaneously, it allows phased and calibrated entry of European goods and services into the Indian market. The effectiveness of the FTA, however, will depend on how successfully issues such as regulatory asymmetries, stringent environmental norms, and EU-imposed non-tariff barriers (NTBs) are addressed. Beyond commerce, the agreement carries broader strategic, technological, and geopolitical implications.
Image source: The Hindu
European Union (EU)
Nature: Supranational political and economic bloc
Genesis: Post–Second World War integration aimed at ensuring peace and stability in Europe
Foundational Rationale: Conflict prevention through economic interdependence, especially Franco–German reconciliation
Key Historical Milestones
- 1951: European Coal and Steel Community (ECSC)
- 1957: Treaties of Rome establishing the EEC and Euratom
- 1992: Maastricht Treaty formally constituting the EU
- 2020: Brexit, reducing membership to 27 states
Objectives
- Four Freedoms: Free movement of goods, services, capital, and people
- Creation of a unified internal market
- Sustainable development balancing economic, social, and environmental goals
- Regional cohesion and reduction of intra-regional disparities
Salient Features
- Single Market with no internal trade barriers
- Customs Union with a common external tariff
- Schengen Area enabling passport-free travel (including some non-EU states)
- Eurozone comprising 20 members, with Bulgaria slated to join in 2026
Key Highlights of the India–EU FTA
Commitments by the European Union
1. Extensive Market Access for Indian Exports
The EU will eliminate tariffs on 97% of its tariff lines, covering 99.5% of Indian exports by value. This represents one of the most comprehensive preferential trade arrangements India has achieved with a developed economy.
2. Major Gains for Labour-Intensive Sectors
Zero-duty access will benefit employment-heavy sectors such as:
- Textiles and garments
- Apparel
- Leather and footwear
- Marine products
- Gems and jewellery
- Toys and sports goods
These sectors currently face duties ranging from 4% to 26%. Around USD 33 billion worth of exports will become duty-free, providing direct gains to MSMEs and workers.
3. Liberalisation of Services Trade
The EU has undertaken binding commitments in 144 services subsectors, including IT, ITeS, digital services, professional services, education, and business services. This enhances regulatory certainty, predictability, and non-discriminatory access for Indian service providers.
4. Preferential Access for Agricultural and Processed Foods
Indian agri and processed food exports will receive preferential treatment, supporting higher farm incomes, value-added exports, rural livelihoods, and women-led enterprises.
5. Mobility of Professionals
A structured framework has been created for temporary movement of professionals such as intra-corporate transferees, contractual service suppliers, and independent professionals. Provisions also cover dependents, students, and future social security coordination.
6. Regulatory Cooperation
Enhanced cooperation on Sanitary and Phytosanitary (SPS) measures and Technical Barriers to Trade (TBT), with emphasis on mutual recognition, NTB reduction, transparency, and predictability for exporters.
Commitments by India
1. Phased Tariff Liberalisation
India will liberalise 92.1% of tariff lines, accounting for 97.5% of EU exports. Sensitive sectors such as dairy, cereals, poultry, soymeal, and select agricultural products remain protected. Automobiles and wines and spirits will see gradual liberalisation to safeguard MSMEs and farmers.
2. Opening of Services Markets
India has committed to liberalising 102 services subsectors, including telecom, financial services, maritime transport, environmental services, and professional services, offering stability and predictability to European firms.
3. MSME-Oriented Rules of Origin
Product-specific rules aligned with global value chains, self-certification through Statements of Origin, and special flexibilities for MSME-dominated sectors like shrimps, prawns, and downstream aluminium products.
4. Balanced IPR and Digital Trade Provisions
Reaffirmation of WTO TRIPS commitments, with safeguards for public interest, the generic pharmaceutical sector, and the Traditional Knowledge Digital Library (TKDL). A balanced approach is adopted on data flows, localisation, and digital sovereignty.
Significance of the India–EU FTA
1. Strategic and Geoeconomic Diversification
Supports the China-plus-one strategy and positions India as an alternative manufacturing hub. Establishes a trusted, rules-based economic partnership between democratic blocs, particularly in semiconductors, AI, defence, and green technologies.
2. Competitiveness through Standards Upgradation
Alignment with EU SPS and TBT norms will drive quality enhancement in Indian manufacturing. The “Brussels Effect” may also improve India’s competitiveness in markets such as the US and Japan.
3. Enhanced Global Trade Leverage
Links the world’s 4th largest economy (India) with the 2nd largest (EU). Together, they account for about 25% of global GDP and nearly one-third of world trade, strengthening India’s negotiating position globally.
4. Catalyst for Green and Digital Transformation
Integration of climate commitments and digital trade rules promotes secure data flows, AI-enabled green industrialisation, and resilient supply chains.
India–EU Relations: Background
Evolution
Diplomatic ties began in 1962 and were institutionalised through the Joint Political Statement (1993) and Cooperation Agreement (1994). The relationship was elevated to a Strategic Partnership in 2004.
Institutional Framework
Anchored in the India–EU Strategic Partnership: A Roadmap to 2025, with annual summits held since 2000.
Trade and Investment
- EU is India’s largest trading partner in goods
- Trade value: USD 135 billion (FY 2023–24)
- Services trade: USD 53 billion (2023)
- EU FDI in India: Over USD 117 billion
Strategic and Security Cooperation
- Joint naval exercises under EUNAVFOR (Operation Atalanta)
- EU joined the Indo-Pacific Oceans Initiative (IPOI) in 2023
- EU is a dialogue partner in IORA
Climate, Connectivity, and Technology
- India–EU Clean Energy and Climate Partnership (2016)
- Collaboration under ISA, CDRI, and the Connectivity Partnership (2021)
- Co-partners in the India–Middle East–Europe Economic Corridor (IMEC)
Science, Space, and Digital Cooperation
- India as associate member of CERN
- ISRO’s launch of ESA’s Proba-3 mission (2024)
- Cooperation in digital transition, water management, and migration frameworks
Concerns Associated with the India–EU FTA
1. Regulatory Measures as De Facto NTBs
EU regulations increasingly act as trade barriers:
- CBAM: Carbon tax on steel, aluminium, cement, and chemicals; Indian steel could face 20–35% higher costs from 2026
- EUDR: Strict deforestation-linked traceability requirements raising compliance costs
- CSDDD (2027): Mandatory value-chain audits raising data confidentiality concerns
- Industrial Accelerator Act: Potential local content requirements
2. Trade Asymmetry
Most Indian exports already face minimal EU tariffs, while India’s average tariffs are significantly higher. Competing economies already enjoy zero-duty access, limiting incremental gains.
3. Lack of Regulatory Carve-outs
Preferential exemptions granted by the EU to the US have not been extended to India, potentially diluting FTA benefits.
4. Dispute over Quality Control Orders (QCOs)
The EU views QCOs as trade barriers, while India considers them essential for consumer protection, quality assurance, and industrial upgrading.
Way Forward
- Maximise gains from services, mobility, and digital trade
- Create a Rapid Response Mechanism to address emerging NTBs
- Secure equitable carve-outs and longer transition periods for CBAM, EUDR, and CSDDD
- Align the FTA with IMEC, IPOI, and the Trade and Technology Council
- Broaden cooperation in technology, climate action, defence, and supply chain resilience
Conclusion
The India–EU FTA represents more than a conventional trade pact; it is a strategic economic alignment between two major democratic centres of power. Its long-term success hinges on managing regulatory challenges, ensuring fairness in sustainability standards, and fully leveraging opportunities in services, mobility, and strategic collaboration to build a resilient and forward-looking India–EU partnership.