The European Union’s Strategic Pivot to India Through the Free Trade Agreement

In recent years, relations between the European Union and India have been gaining momentum across many sectors. After nearly two decades of stop-start negotiations, the European Union and India have set an ambitious goal: to finalize their long-awaited free trade agreement (FTA) by the end of 2025. Originally launched in 2007, the talks were suspended in 2013 over deep disagreements on multiple aspects. It wasn’t until 2021 that both parties agreed to resume talks. Yet, to date, the FTA remains unsigned. The EU is now actively pushing to close the deal. Why is the EU so eager to tie the knot with India now?

Negotiations around a free trade agreement between the European Union and India were formally launched in 2007. The scope of the proposed agreement aimed to cover not just trade in goods and services but also government procurement, intellectual property rights, and sustainable development, among others. However, the negotiations encountered persistent challenges. By 2013, talks stalled due to deep divergences on key issues such as market access for automobiles and wines and spirits, labor and environmental standards, and digital policies.

It wasn’t until 2021 that both parties agreed to resume talks. Not less than nine rounds of negotiations were held between July 2022 and September 2024. India's expansive and economically diverse market adds significant complexity to negotiations, especially when compared to smaller economies such as Vietnam, which signed a Free Trade Agreement with the EU in 2019, following approximately seven years of negotiations.

For the European Union, India represents a strategic alternative to reduce dependence on China and counter its growing geopolitical influence. Since 2007, the global order has evolved into a multipolar system, with China assuming a more prominent role on the world stage both diplomatically and economically. The Covid-19 pandemic and the war in Ukraine both exposed the vulnerabilities of overreliance on single suppliers, especially in critical sectors like pharmaceuticals, electronics, and rare earths. Against this backdrop, India is not just a fast-growing economy; for the European Union, it is also a like-minded democracy and a geopolitical counterweight to China in the Indo-Pacific region. For instance, during his tenure, French President Emmanuel Macron has undertaken two state visits to India, including one in 2024 to discuss increasing joint naval exercises and sharing intelligence to counterbalance China’s growing presence in the Indo-Pacific. China’s stronger presence in the region is notably reflected in the Belt and Road Initiative, as well as massive investments in regional infrastructure and an increased military presence; those developments have raised concerns among several Western powers and Asian partners. Although Kolkata occasionally appears on maps of China’s Belt and Road Initiative, India has not formally joined the project and remains critical, especially regarding the China-Pakistan Economic Corridor. While India remains non-aligned, its increasing involvement in Western-aligned deals signals a growing willingness to engage more deeply with global powers. For the EU, the signature of a Free Trade Agreement with India is an opportunity to strengthen its presence in Asia and pursue its Indo-Pacific strategy with more credibility while supporting India’s rise as a global power.

As India has emerged as the world’s fifth-largest economy, the importance of deepening bilateral economic ties with the European Union has only grown. For India, a free trade agreement would grant preferential access for its exporters to the EU market. Meanwhile, the European Union has strong economic incentives to secure a deal with India, which represents a vast and relatively untapped market for European goods and services. Currently, EU investments in India exceed USD 117 billion, with around 6,000 European companies operating in the country. Still, the partnership’s full potential remains far from realized and European business lobbies and export-oriented sectors are pushing for better access to the Indian market. High tariffs, regulatory hurdles, and complex customs procedures have long limited the reach of European products in the Indian market. This is particularly challenging for industries such as automobiles, pharmaceuticals, machinery, renewable energy, and luxury goods, all of which see immense opportunities in India’s rapidly growing middle class. Yet, they also face some of the highest import duties, with tariffs on EU-made vehicles, for instance, reaching up to 100%.

The EU’s urgency also stems from internal economic and political factors. The United States' shift toward protectionist policies, particularly under the Inflation Reduction Act, has made Europe wary of relying too heavily on the American market. The EU now seeks to diversify both its exports and import sources, which makes a robust trade deal with India all the more appealing.

Moreover, in 2014, the Indian government launched the “Make in India” initiative. The program aims to transform the country into a global manufacturing hub as an alternative to China and Southeast Asian countries, promoting domestic production by opening key sectors to foreign investors and improving the overall business environment, among other measures. A well-negotiated FTA could reinforce the “Make in India” goals by lowering tariffs, harmonizing standards, and ensuring a level playing field. A robust EU-India FTA, aligned with initiatives like “Make in India”, has the potential to unlock billions in trade and investment, bringing strategic and economic benefits to both sides.

The EU and India share interests beyond just trade. Both nations are grappling with similar challenges, particularly in climate change and green energy, and could benefit from cooperation. India is one of the few large economies actively playing a key role in expanding the renewable energy sector. The Indian government has launched initiatives such as the National Green Hydrogen Mission and is a founding member, alongside France, of the International Solar Alliance (ISA), a coalition of solar resource-rich countries established in 2015 to address their specific energy needs. Moreover, India has recently surpassed China as the leading destination for clean technology funding, with deals worth about USD 2.4 billion completed in the third quarter of 2024. While the EU possesses world-leading technologies in wind, solar, hydrogen, and grid infrastructure, a free trade agreement could facilitate technology transfer, joint research, and large-scale investment in sustainable development.

Despite the momentum, significant challenges remain. Disagreements over tariffs on sensitive sectors, like European wines and spirits, and Indian textiles, persist. Labor and environmental standards demanded by the EU could also be seen as intrusive by Indian authorities. India has notably raised objections to several EU environmental regulations, including border carbon taxes on steel, aluminum, and cement. Moreover, India values its strategic autonomy and may be reluctant to fully align with EU standards in areas where it sees room for sovereign discretion.

The EU’s rush to finalize a trade agreement with India is driven by a unique convergence of factors: shifting geopolitical alliances, the need for economic diversification, internal political pressure, and a growing awareness that the world’s economic center of gravity is moving eastward. India, with its scale, ambition, and strategic location, represents both a challenge and an opportunity for Europe. Finalizing the Free Trade Agreement won’t be easy, and success isn’t guaranteed. However, for the European Union, the cost of further delay may be too high. In a world marked by rising uncertainty and growing competition, the EU knows that closing this deal is not just about trade, it’s about securing its place in the future global order.