Sustaining deeper ties will entail compromises on both sides in the long run
“It is not just Brussels that is investing heavily in new relationships. New Delhi is also looking to diversify markets in the wake of the punitive tariffs imposed by the US. There is a mutual recognition of the value of a close partnership. This is being expressed in the conclusion of not just a trade agreement but also a security and defense partnership. It would be only the third such pact signed by the EU, the other two being with Japan and South Korea. As such, it sends a powerful message in an era of fast-changing global alliances.”
It is thus worthwhile to recognize that the present bonhomie in India-Europe relations will be tested on the ground in the coming days.
India and Europe seem poised to bridge a gap that has yawned for decades. There has been greater confluence with the UK, given the colonial history and ease of communication in the English language. A shared language has equally helped in promoting a close relationship with the US, along with a highly educated diaspora.
As for Europe, there have been sizeable investments from multinationals, but the inflows have been far lower than to China. Economic ties have also faced the hurdles of the European Commission’s complex bureaucracy and rigid regulations. Even so, trade between India and the European Union (EU) has grown rapidly over the years.
Latest official data shows that the annual India-EU merchandise trade was $136 billion in 2024-25. This is even higher than the $132-billion trade recorded with the US. The EU is India’s biggest trading partner, yet there has been far more media hype over the much-awaited pact with the US than over the one with the EU. This is primarily due to the tariff drama of US President Donald Trump, who has been using a trade instrument as a blunt weapon of foreign policy.
At the World Economic Forum summit in Davos last week, the buzz was over Trump’s summary dismissal of Europe over a wide range of issues, from Greenland to the role of NATO. Equally, there was buzz over Canadian Prime Minister Mark Carney’s call to middle powers to create a new world order. It is at this juncture when the post-WWII rules-based international system seems to be overturning that EU leaders descended on New Delhi for a high-profile summit along with being honored guests on Republic Day. The unveiling of a free trade agreement (FTA) at this stage could not have been more timely as Europe is clearly looking to reduce its economic dependence on the US. New ties are being forged rapidly as the India trade pact comes on the heels of the EU tying up a deal with Latin America’s biggest trade bloc, Mercosur.
It is not just Brussels that is investing heavily in new relationships. New Delhi is also looking to diversify markets in the wake of the punitive tariffs imposed by the US. There is a mutual recognition of the value of a close partnership. This is being expressed in the conclusion of not just a trade agreement but also a security and defense partnership. It would be only the third such pact signed by the EU, the other two being with Japan and South Korea. As such, it sends a powerful message in an era of fast-changing global alliances.
At the same time, sustaining deeper India-EU ties will entail compromises on both sides in the long run. The newfound warmth has emerged after many years of frostiness. It must be recalled that the current FTA has been under discussion for as long as 18 years. Talks were even suspended in 2014 and then resumed in 2022. The reason has been rigidity on both sides, with red lines being drawn firmly without any effort at flexibility.
Going forward, the first area of conflict could be the European Commission’s bureaucracy, legendary for its tangled web of rules. In fact, some Brexit supporters had cited the EU’s regulatory complexity as a reason to exit the economic bloc. There is no doubt that in contrast, the FTA with the UK moved much more quickly despite several changes at the top during the negotiations. Boris Johnson was the Prime Minister when the talks commenced, while it was Keir Starmer who ultimately signed the pact.
Thus, there are potential irritants, especially over a wide range of non-tariff barriers. The most contentious is the carbon border adjustment mechanism (CBAM) that could affect the ultimate cost of myriad Indian exports, particularly steel, aluminum, and cement. This runs counter to studies showing that the environmental impact of such emissions is minimal. According to an UNCTAD report, the value of the CBAM in mitigating climate change is limited as it would cut only 0.1 per cent of global CO2 emissions.
Another issue that is critical for India is greater ease of movement for skilled professionals. While the US has benefited greatly from relaxed entry policies for highly educated personnel, Europe has fallen behind in this respect. This is despite the fact that countries like Germany are now keen to lure high-tech professionals, especially in the wake of the curbs on H-1B visas. The new mobility agreement that is being put in place may ultimately correct this lacuna, though the focus is largely on students and research.
The need to appreciate India’s red lines in terms of market access will also be an important factor in expanding economic ties. Dairy and agriculture have always been contentious issues between the two sides. The EU has often taken a sharply divergent position at the World Trade Organisation on agriculture, including the need to protect livelihoods of farmers surviving at subsistence levels, even though huge subsidies are given to rich farmers in developed economies. A greater understanding of these issues is needed on multilateral platforms.
It is thus worthwhile to recognize that the present bonhomie in India-Europe relations will be tested on the ground in the coming days. Among the positives, the free trade pact has been finalized due to a determined effort to be more flexible, considering the external headwinds on the trade front. Even India has had to recognize that providing greater market access can yield rich dividends in terms of enabling matching access to a huge market of developed economies.
Yet both sides must reduce the red tape for which Brussels and New Delhi have a well-deserved reputation. In the backdrop of a changing world order, one hopes efforts will be made to do everything needed to upgrade the economic and strategic relationship. It is only this firm resolve that will ensure a brighter outlook for India-Europe ties.
(Sushma Ramachandran is a columnist at The Tribune)
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