India–EU FTA: A Long Road to Convergence

By Sanjeev Oak

Now, with External Affairs Minister S. Jaishankar securing Germany’s public endorsement, New Delhi senses momentum. Yet, the deal’s fate hinges not just on political optics but on the ability to reconcile deeply entrenched differences across sensitive sectors such as automobiles, dairy, and climate-linked trade standards.

A Historical Tangle: 2007 and After

The EU first approached India for an ambitious “Broad-based Trade and Investment Agreement” in 2007. At the time, India was emerging as a high-growth economy post-liberalisation, while the EU was keen to diversify beyond transatlantic markets.

But the talks quickly became bogged down.

• Market Access Conflicts: The EU sought greater access for its automobiles, wines, spirits, and dairy, while India pushed for freer movement of professionals, IT services, and textiles.
• Regulatory Clashes: EU’s demand for stricter intellectual property norms (beyond WTO standards) met with Indian resistance.
• Climate Standards: Long before carbon tariffs became mainstream, the EU pressed India on environmental clauses.

By 2013, negotiations froze. India feared its auto sector and dairy farmers would be swamped, while Brussels was unconvinced of India’s willingness to liberalise.

Talks resumed post-2016, partly in response to Brexit, which forced both sides to rethink global trade positioning. The Russia–Ukraine war of 2022 further exposed the EU’s supply chain vulnerabilities, pushing Brussels to re-engage India.

“This is not just about tariffs; it is about trust, standards, and strategic alignment.”

Germany as the Pivot

Among EU members, Germany wields the greatest influence. With its powerful automotive industry—Volkswagen, BMW, Mercedes—Berlin has a direct stake in prising open India’s market.

India, meanwhile, sees Germany as a bridge to EU consensus. Jaishankar’s recent appeal to Berlin is less about bilateral goodwill and more about mobilising a heavyweight advocate inside the EU system.

This dynamic recalls India’s strategy during the Japan FTA (2011), where Tokyo’s commitment to long-term investment helped balance Indian sensitivities. Germany could play a similar stabilising role now.

Comparative Case Studies: Lessons for India

1. EU–South Korea FTA (2011)

The EU–South Korea pact slashed auto tariffs dramatically. Korean manufacturers adjusted by scaling up exports of small cars while benefiting from easier access to EU machinery. India worries that a similar model could swamp its domestic carmakers.

2. EU–Vietnam FTA (2020)

This agreement balanced EU market access demands with Vietnam’s agricultural protections. Vietnam secured phased liberalisation and carve-outs for sensitive sectors. For India, this shows that flexibility and staggered timelines are possible—if negotiated with clarity.

3. India–ASEAN FTA (2009)

India conceded steep tariff cuts on palm oil and rubber, which later triggered domestic backlash. The “ASEAN experience” haunts Indian negotiators, making them wary of another politically costly agreement.

“Vietnam’s example demonstrates that asymmetric economies can still strike balanced deals—if timelines and safeguards are carefully designed.”

The Sectoral Battlefields

Automobiles

• The EU demands lower tariffs on luxury cars (currently around 100%).
• Germany argues Indian middle-class growth can support such imports.
• Indian manufacturers fear becoming mere assembly units for EU brands.
• A compromise could involve phased reductions with localisation mandates.

Dairy

• India’s cooperative-driven dairy model (Amul, Nandini) is politically sensitive.
• EU wants access for cheese and milk powder; Indian farmers fear undercutting.
• Likely outcome: carve-outs and tariff quotas rather than blanket liberalisation.

Green Technology & Climate Standards

• EU’s Carbon Border Adjustment Mechanism (CBAM) is a flashpoint. It effectively taxes carbon-intensive imports, targeting steel, cement, and aluminium.
• India sees CBAM as a “green protectionist” tool.
• However, cooperation in green hydrogen and renewables offers common ground.

Geopolitics as the Backdrop

The urgency in 2025 is not purely economic.

• U.S. Protectionism: Washington’s rising tariffs on Indian goods push New Delhi to diversify exports.
• China Factor: Both EU and India want to reduce overdependence on China, particularly in critical minerals and supply chains.
• Russia Energy Trade: India’s discounted oil imports from Russia have strained U.S. relations but made Europe look at India with cautious pragmatism.

The FTA, therefore, becomes a strategic hedge—a way for India to deepen Western economic links without being subsumed by U.S. diktats.

“In a fractured world economy, trade deals are no longer just about commerce—they are geopolitical alignments.”

Domestic Politics: The Tightrope for New Delhi

The Modi government faces twin pressures:

1. Pro-growth Narrative: India must show openness to global trade to attract investment.
2. Protectionist Demands: Farmers, auto manufacturers, and trade unions resist deep liberalisation.

The government’s messaging is that India seeks “fair and balanced trade, not one-sided concessions.” Yet, politically, any perception of harming farmers could trigger backlash, especially in states like Gujarat, Maharashtra, and Punjab.

Potential Gains for India

• Export Expansion: Greater access for IT, textiles, pharmaceuticals in Europe.
• Investment Flows: German Mittelstand companies could scale operations in India.
• Technology Transfer: Partnerships in electric mobility, renewables, and hydrogen.
• Geopolitical Leverage: Positioning India as a stable partner amid U.S.–China volatility.

Risks and Red Lines

• Dairy Farmers: Electoral sensitivities mean full liberalisation is unlikely.
• Labor Standards: EU may push for stricter rules; India fears loss of regulatory autonomy.
• IPR Demands: Pharmaceutical access could be curtailed if EU prevails on patents.

The Road Ahead: End-2025 or Mirage?

Both sides have set end-2025 as the target to close negotiations. But deadlines have slipped before. What may be different now is the strategic urgency:

• EU needs new partners amid U.S. trade wars and China decoupling.
• India wants to showcase global economic leadership under its G20 presidency legacy.
• Germany’s support could be the decisive nudge.

“Deadlines in trade diplomacy are like mirages—they matter less than political will and sectoral compromise.”

Toward a Defining Test

The India–EU FTA is no longer an abstract negotiation. It has become a litmus test of India’s trade diplomacy, balancing openness with sovereignty.

If successful, it will be India’s most consequential economic agreement since liberalisation—far larger in scope than deals with Japan, ASEAN, or Australia. If it falters, it will reinforce perceptions that India is unwilling to embrace deep trade integration.

Either way, the road to Brussels passes through Berlin—and New Delhi knows it must seize the moment.