India-EU Trade Relations

Why in News?

India-EU Trade Relations: Recently, a high-level delegation led by European Commission (EC) President Ursula von der Leyen, comprising 22 out of 27 European Commissioners, visited India. This visit marked a new chapter in India-EU relations, with discussions or agreements to enhance cooperation in trade, technology, green energy, and defense.

Key Highlights of India-EU High-Level Meeting

To strengthen the strategic partnership between India and the European Union (EU), a high-level delegation led by the European Commission visited India on February 27-28, 2025. During this visit, the second ministerial meeting of the India-EU Trade and Technology Council (TTC) was also held, adding new dimensions to bilateral cooperation.

• Trade and Economic Cooperation: Both sides reaffirmed their commitment to finalizing a balanced, ambitious, and mutually beneficial Free Trade Agreement (FTA) at the earliest. Discussions also progressed on agreements related to investment protection and geographical indications. The partnership aims to reduce trade barriers, strengthen supply chains, and create an investment-friendly environment.
• Technology and Innovation: India and the EU pledged to enhance cooperation in semiconductors, 6G, digital infrastructure, artificial intelligence, high-performance computing, and cybersecurity. They emphasized the effective implementation of the India-EU Semiconductor MoU, fostering research and production collaboration. Additionally, MoUs were signed to strengthen cooperation between the India 6G Alliance and the EU 6G Smart Networks Industry Group.
• Green Energy and Sustainable Development: Clean energy, climate change, and sustainable development were key areas of discussion. India and the EU agreed to expand collaboration in green hydrogen, solar energy, offshore wind energy, and smart urbanization. In this regard, both parties signed agreements to establish the India-EU Green Hydrogen Forum and the Offshore Wind Energy Business Summit.
• Defense and Security: Both sides committed to enhancing cooperation in maritime security, cybersecurity, counterterrorism, and global peace efforts. The discussions emphasized joint naval exercises between the Indian Navy and European maritime security agencies. India also expressed interest in joining the EU’s Permanent Structured Cooperation (PESCO) and the Security of Information Agreement (SOIA), paving the way for deeper defense collaboration.
• Economic Corridor: To implement the India-Middle East-Europe Economic Corridor (IMEC), announced during the G20 Summit, both parties agreed on concrete steps to strengthen trade routes, boost energy cooperation, and enhance physical and digital connectivity.
• Human Resource Development: Both sides agreed to promote youth exchanges and expand opportunities for skilled Indian workers in EU member states. Discussions also covered policy-level reforms to encourage organized migration and labor mobility.
• Global Challenges:India and the EU reaffirmed their commitment to jointly addressing global issues such as climate change, AI governance, terrorism, and international peace. Both sides also discussed the Ukraine crisis and Middle East tensions, advocating for peace based on international law, sovereignty, and territorial integrity.

India-EU Trade Relations: History and Relations

• History 
  • Diplomatic relations between India and the European Union (EU) were established in 1962 with the European Economic Community (EEC). 
  • Over time, these relations have strengthened, passing through several key milestones.
  • The partnership was formalized with the Joint Political Statement in 1993 and the Cooperation Agreement in 1994.
  • The first India-EU Summit was held in Lisbon in 2000, and in 2004, the relationship was upgraded to a Strategic Partnership.
  • In 2020, the India-EU Strategic Partnership Roadmap 2025 was adopted to accelerate cooperation in trade, security, digital innovation, and green energy.
• Trade and Investment Relations
  • Discussions on a Free Trade Agreement (FTA) between India and the EU have been ongoing for the past 15 years and were resumed in 2021.
  • The EU is India’s second-largest trading partner and also the second-largest destination for Indian exports.
  • In 2023-24, bilateral trade in goods between India and the EU reached $135 billion, with India’s exports at $76 billion and imports at $59 billion. Trade in services was valued at $53 billion.
  • The EU is a major source of Foreign Direct Investment (FDI) in India, contributing $117.4 billion between 2000 and 2024, which accounts for 16.6% of total FDI inflows into India.
  • Conversely, Indian companies have invested $40.04 billion in the EU, ensuring market access and new opportunities for Indian industries.
• Technology Cooperation
  • India and the EU are collaborating on emerging technologies.
  • The India-EU Trade and Technology Council (TTC), launched in 2022, is working on digital and strategic technologies, green energy innovation, trade, and supply chain resilience.
  • In 2022, India and the EU signed an agreement on High-Performance Computing (HPC) cooperation.
  • In November 2023, an MoU on Semiconductor Research & Development was signed to strengthen collaboration in this sector.
  • India and the EU are also working together on Artificial Intelligence and Cybersecurity, promoting digital sovereignty and data protection.
• Cooperation in Green Energy
  • The India-EU partnership focuses on renewable energy sources, particularly green hydrogen and sustainable energy.
  • In 2024, India was invited as a special partner at the European Hydrogen Week in Brussels, boosting investment and research in green hydrogen.
  • The European Investment Bank (EIB) has committed €1 billion (approximately ₹9,000 crore) in financial support for hydrogen projects in India.
  • These efforts aim to strengthen India’s green hydrogen ecosystem by 2030 and contribute to the EU’s carbon-neutral strategy by 2050.

What is a Free Trade Agreement (FTA)?

A Free Trade Agreement (FTA) is a pact between two or more countries to facilitate trade by reducing or eliminating tariffs, quotas, regulatory barriers, and subsidies. 

• The primary objective of FTAs is to lower trade costs, boost economic growth, and enhance global competitiveness. These agreements allow countries to trade based on their comparative advantage, leading to cheaper products and more choices for consumers.
• India and Free Trade
  • India has been a founding member of the General Agreement on Tariffs and Trade (GATT) since 1947, which later transformed into the World Trade Organization (WTO) in 1995. However, India became more proactive in signing FTAs after the economic liberalization of 1991, leading to a significant rise in India’s trade-to-GDP ratio. In recent years, India has focused more on bilateral and regional trade agreements.
  • One of the most significant FTAs is the Regional Comprehensive Economic Partnership (RCEP), a mega trade deal among 16 Asia-Pacific nations aimed at simplifying and liberalizing trade rules to boost trade and investment. Initially, India showed interest in joining RCEP but decided to opt out in 2019 to protect domestic industries and farmers.
• Global Experience
  • The benefits of FTAs are widely debated, with mixed practical experiences. 
  • For instance, the North American Free Trade Agreement (NAFTA), implemented in 1994, was expected to create 200,000 new jobs in Mexico. 
  • However, by 2010, the U.S. trade deficit had increased, and nearly 700,000 jobs were lost.
  • This indicates that FTAs do not always deliver the expected results and can sometimes adversely affect local industries and jobs.
• Future Outlook
  • India needs a balanced approach while adopting FTAs. Before implementing any trade agreement, it is crucial to ensure that domestic industries, farmers, and employment opportunities are not negatively impacted.
  • Currently, India is engaged in FTA negotiations with the European Union (EU), the United Kingdom (UK), Canada, and the Gulf Cooperation Council (GCC), which could expand trade opportunities. However, these agreements should prioritize equal opportunities, trade balance, and provisions that support domestic industries.

Challenges in India-EU Trade Relations

• Lack of Trade Diversification: A major challenge in India-EU trade relations is the lack of diversification. Only 20 product categories account for 90% of India’s total exports, leading to neglect of other potential sectors. Additionally, India’s trade policies include various non-tariff barriers, such as Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary (SPS) measures, which hinder trade expansion.
• Non-Tariff Barriers: The EU has imposed several non-tariff barriers on India’s pharmaceutical sector, including: Good Manufacturing Practices (GMP) certification under WTO regulations, Import restrictions and Anti-dumping measures. These barriers make it difficult for India’s pharmaceutical industry, a key player in the global market, to expand its presence in the EU.
• Carbon Border Adjustment Mechanism (CBAM): The EU’s Carbon Border Adjustment Mechanism (CBAM) poses a significant challenge to India’s export capacity. Under this system, India’s energy-intensive exports could face an additional tax of up to 25%, reducing the competitiveness of Indian products in the European market.
• Delay in FTA Negotiations: India and the EU began negotiations for a Free Trade Agreement (FTA) in 2007, but discussions became inactive after 2013 and were revived in 2021. 
• Differences Over Human Rights Standards: India and the EU have differences over labor laws, human rights, and environmental standards, which affect European investments in India. The EU’s trade policy emphasizes strict environmental and social standards, while India’s policy focuses more on economic growth and industrial development. This misalignment makes European companies hesitant to invest in India.

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