India–European Union: Anchoring A Strategic Economic Compact

The European Union (EU) is currently India’s second-largest trading partner, following the US, underscoring its pivotal role in India’s external trade landscape. In 2024, trade in goods between India and the EU amounted to approximately €120 billion (about US$ 136 billion), while trade in services reached €60 billion—equivalent to around US$ 65 billion based on current exchange rates.

Together, the overall trade volume approaches US$ 201 billion, underlining the depth and scale of economic ties. Indian exports to the EU stood at approximately US$ 75.85 billion, with imports from the EU close to US$ 60.68 billion, reflecting a balanced and mutually beneficial relationship extending beyond goods to services and investment. The EU remains a critical source of investment in India, with cumulative European investments surpassing $117 billion and about 6,000 European companies generating a significant number of jobs in India.

India’s exports to the European Union primarily comprise smartphones, petroleum products, pharmaceuticals, diamonds, pneumatic tyres, textiles, and engines. In 2024, electrical and electronic goods accounted for a significant export value, reaching approximately US$ 12.7 billion, while organic chemicals and mineral fuels also represented substantial segments, valued at around US$ 12 billion and US$ 7.7 billion, respectively. Conversely, the EU’s exports to India feature airplanes, powered engines, non-industrial diamonds, metal scraps, integrated circuits, and laboratory reagents—reflecting complementary manufacturing and technological strengths between the two economies.

In the services sector, bilateral trade is robust and rapidly expanding. India’s service exports to the EU encompass IT-enabled services, financial and business services, professional consulting, and telecommunications. This segment reached an estimated €60 billion in 2023, doubling since 2020, illustrating the advanced and evolving nature of economic exchanges beyond goods.

The EU exports services related to financial markets, telecommunications, and business consultancy, which complement India’s software development, IT services, and technology-driven sectors. This growing services trade fosters deeper integration and value creation, critical to the future of the India-Europe economic partnership.

Navigating Regulatory Complexities

While many barriers to trade and investment have been addressed, businesses continue to face a complex web of regulatory challenges affecting cost efficiency and operational predictability. Divergent technical standards, certification procedures, and conformity assessment requirements frequently result in overlapping compliance obligations and lengthened processing times.

Differences in customs practices, documentation norms, and product testing add to transaction costs, especially for small and medium enterprises. These frictions underscore the urgent need for advancing mutual recognition agreements (MRAs) and deepening regulatory cooperation. Aligning standards and simplifying conformity assessments through reciprocal recognition of certifications can significantly reduce market entry barriers and foster a more seamless, integrated business environment.

The ongoing FTA negotiations present a strategic window to tackle these impediments. Establishing EU-recognised testing and certification bodies within India and promoting the digitalisation of customs clearance systems could dramatically streamline trade flows. Such regulatory integration would improve access to critical sectors like automobiles, pharmaceuticals, and chemicals, where harmonised standards are essential for unlocking growth.

Investment: The Economic Backbone

Investment underpins Europe’s economic engagement with India. India’s political stability, demographic advantages, and expanding global role attract substantial EU investment. However, concerns about ease of doing business, protection of intellectual property rights, and legal dispute mechanisms have been voiced at various forums.

The FTA’s investment protection provisions must address these concerns by emphasising non-discrimination, safeguarding against expropriation, and ensuring effective dispute resolution to bolster investor confidence. European firms increasingly view India not only as a vast consumer market but also as a strategic manufacturing base for global operations. Targeted investments in sectors such as electric vehicles, renewable energy, aerospace, digital infrastructure, and healthcare align European technological strengths with India’s industrial ambitions—promising sustainable, mutually beneficial growth.

Building Resilient Supply Chains

The recent upheavals in global supply chains reaffirm the need for diversification and resilience. India’s emergence as a dependable supplier and production hub positions it as a key partner for Europe seeking to reduce over-reliance on traditional sources. Yet, supply chain integration remains constrained by infrastructural inadequacies, fragmented vendor networks, and logistical bottlenecks.

European companies should invest in strengthening supplier ecosystems through structured matchmaking platforms, mentorship programs for India’s MSMEs, and infrastructure upgrades—particularly along the India-Middle East-Europe Corridor, which promises reduced transit times and enhanced logistics efficiency. These measures will improve resilience, facilitate technology transfer, and elevate quality—critical components of global competitiveness.

FTA As A Catalyst

Over half of the India-EU FTA chapters have been concluded, resolving approximately 90 per cent of market access challenges. The agreement anticipates delivering billions in mutual income gains by reducing tariffs, streamlining regulations, and securing stronger investment protections. These advancements would enable European businesses to compete more effectively, particularly against formidable rivals like the US and China.

Sensitive issues such as automobile tariffs, wine and spirits duties, and mechanisms like the Carbon Border Adjustment Mechanism (CBAM) require nuanced resolution. While CBAM supports environmental goals, its rigid enforcement has led to a notable decline in Indian steel and aluminium exports due to compliance complexities. Europe must lead balanced negotiations that satisfy climate commitments without alienating Indian industry or risking the broader partnership.

Reconciling Regulatory Ambitions

New EU regulations—including CBAM and the EU Deforestation Regulation—impose stringent documentation and compliance demands that many Indian exporters find daunting. The resultant economic costs, including reduced export opportunities and higher overheads, risk creating a perception of European protectionism.

The Indian government has raised concerns about linking excessive regulatory conditions with trade agreements, fearing detrimental effects on competitiveness. To sustain goodwill and commercial viability, Europe must establish dedicated compliance assistance centers in India, facilitate India-friendly transitional arrangements, and frame regulatory cooperation as a vehicle for joint innovation in sustainable technology rather than trade barriers. Practical support and cooperative frameworks will be vital to sustaining Indian engagement and avoiding backlash.

Innovation and Technology Partnerships for the Future

India’s Production Linked Incentive (PLI) programme and Make in India 2.0 have transformed its manufacturing landscape, particularly in electronics, semiconductors, and pharmaceuticals. With nearly 19% of the world’s chip designers based in India and the electronics manufacturing sector projected to nearly triple by 2026, India is becoming a critical node in the global technology ecosystem.

The EU-India Trade and Technology Council has initiated platforms for collaboration in next-generation fields such as artificial intelligence, quantum computing, and 6G networks. European companies should act swiftly to create joint ventures combining Europe’s financial and technological resources with India’s engineering talent and production scale. Such partnerships will accelerate innovation and establish enduring strategic industrial ties.

A Strategic, Empathetic Partnership

India demands partnership beyond transactional exchanges—one rooted in respect for its development needs and aspirations. The EU must adopt flexible, inclusive regulatory, trade, and investment policies. Facilitating bidirectional flows of technology, capital, and skilled labor will enrich both societies and economies. Expanding labour market access for Indian professionals and reciprocal opportunities for European managers in India will deepen engagement beyond commerce, fostering people-to-people ties and institutional collaboration.

Europe’s Call to Action

As India continues its dynamic rise, the EU must act with clarity, urgency, and sophistication to secure a comprehensive partnership. The India-EU FTA, India’s industrial ascent, and evolving global geopolitics provide an unprecedented window for transformative collaboration. Europe’s government and business leaders must redouble efforts to dismantle trade barriers, foster joint innovation, safeguard investments, and strengthen supply chains. Only through such commitment can Europe secure India as a steadfast partner, creating a resilient, forward-looking alliance ready to face the century’s challenges and opportunities.

(The writer, a commentator, is a former Indian diplomat who has served as High Commissioner to Canada, Ambassador to Japan & Sudan. Views are personal.)