Context:
India and the European Union are working together to finalize a Free Trade Agreement (FTA) as soon as possible. Prime Minister Narendra Modi and EU leaders recently discussed the importance of concluding the deal quickly. Senior EU negotiators, especially those focused on trade and agriculture, are expected to visit India soon to resolve key issues.
Trade Talks with EU:
Of the 27 chapters in the proposed agreement, negotiations have reportedly concluded on 11. The remaining contentious issues include:
- Agriculture and dairy market access
- Intellectual property rights (IPR)
- Labour and sustainability standards
- The Carbon Border Adjustment Mechanism (CBAM)-Delhi is reportedly seeking concessions similar to those granted to the United States under CBAM.
The bilateral trade between India and the EU reached $137.41 billion in goods and $51.45 billion in services in 2023-24, while FDI from the EU totalled over $107 billion between April 2000 and December 2023.
Benefits of the India-EU Pact:
A successful FTA with the EU could deliver the following strategic benefits:
- Greater Market Access: Preferential tariffs and smoother regulatory alignment with one of the world’s wealthiest markets.
- Boost to Exports: Especially in sectors like textiles, IT services, pharmaceuticals, and machinery.
- Sustainability and Innovation Push: The agreement could encourage Indian industries to align with global sustainability norms.
- Geopolitical Signaling: It would underscore India’s commitment to rules-based international trade.
However, India must tread carefully and protect its red lines, particularly in sensitive sectors such as dairy and agriculture. The recently concluded India-UK trade deal could serve as a useful blueprint.
About CBAM:
The EU’s Carbon Border Adjustment Mechanism, set to be fully implemented from January 1, 2026, is a crucial concern for Indian exporters. It aims to penalize carbon-intensive imports to encourage global climate action, but could act as a non-tariff barrier for countries like India.
Affected sectors include:
- Steel and aluminum
- Cement
- Fertilizers
- Automotive components
Other measures be considered:
While India builds trade ties with Western countries, it should also focus on the big changes happening in East and Southeast Asia. Many companies are now following a "China+1" strategy — meaning they want to set up factories in countries other than China. This gives India a great chance to become a part of global production networks.
Here’s what India can do:
· Improve roads, ports, and other infrastructure to make trade cheaper and faster
· Make customs and paperwork simpler for exporters
· Strengthen manufacturing through government schemes like PLI (Production-Linked Incentives)
· Sign strong trade deals that help Indian businesses join global supply chains
Conclusion:
At a time when global trade is facing challenges like rising protectionism and disrupted supply chains, India has a valuable opportunity. Moving forward with the EU trade deal is a strong step, but to fully benefit, India should also look at joining global trade networks like the CPTPP and strengthen its role in international supply chains. India and the European Union are making visible progress toward finalizing their long-pending trade agreement.
