The conclusion of negotiations for a free trade agreement (FTA) with the European Union (EU) is welcome at this challenging juncture for India. It promises to diversify the country’s export footprint at a time when India has been struggling to deal with its largest trade partner, the USA. To begin with, this deal will give New Delhi a better footing in its ongoing negotiations with Washington. This is an opportunity to move away from overreliance on the US under a mercurial Donald Trump and a passive-aggressive China.
It is because of the current delicate geopolitical situation that Prime Minister Narendra Modi is promoting this agreement as the “mother of all deals,” betraying both a touch of desperation and relief. The big numbers justify the description, of course. India and the EU account for 25% of the global GDP, and one-third of global trade. This is the biggest of the 22 free trade deals India has negotiated so far, and the most exhaustively negotiated over 17 years.
The big positive for India is freer access to the EU market for goods and services exports at a time when both are running into headwinds on account of America’s tariffs and H1B regulations. Once the deal becomes operational, likely early next year, over 99% of Indian goods will be able enter the EU duty-free on day one, opening up a $33 billion export opportunity in gems/jewellery, plastics, textiles, automobiles, engineering goods, and pharma. If India can realise the full value of this opportunity, it will offset a major part of the goods it currently exports to the US under duress from Trump.
The deal provides for calibrated liberalisation in the auto sector. EU cars will get quotas (2,50,000 per year at 10% tariff, down from 110%), in return for which Make in India auto exports stand to get freer access to European consumers.
More significantly for India's middle class, access will be opened up to EU's 144 sub-sectors such as IT and IT-enabled services, professional/educational services. The deal pledges to ease mobility for professionals, which should open up opportunities for Indian workers in Europe. Shorter-term business mobility regulations will be eased too, facilitating intra-corporate transfers of employees, along with entry and working rights for dependents and family members.
Conversely, the EU will get access to 102 sub-sectors offered by India, which translates into greater competition for Indian products such as cars and beverages. Some sensitive sectors will continue to be protected, such as dairy, cereals and poultry.
Despite the euphoria over the conclusion of negotiations, the deal remains to be subjected to legal scrubbing on either side, political wrangling and then final ratification by legislatures, which may delay implementation to early 2027. Until then, there will be no choice but to endure the current global flux.
There will be creases in the deal ahead, of course. Europe and India have different views on relations with Russia in the context of the war with Ukraine. However, New Delhi will find Brussels a more equal partner, both economically and militarily. It is likely to be a more mature conversation compared to the unpredictable man in Washington. But then, much depends on that man, who coincidentally has made it a habit to arm-twist both Europe and New Delhi. Which makes this FTA a common cause for both signatories.