India, EU decide to sign FTA by end-2025

The delegation-level talks between India and the European Union (EU) led by Indian Prime Minister Narendra Modi and European Commission President Ursula von der Leyen in New Delhi on Sunday ended with the decision to conclude the long-pending Free Trade Agreement (FTA) between the two sides by the end of 2025.

The decision comes at a time when United States President Donald Trump had kicked up a tariff storm, which would affect India and EU as much as many others. The sentiment prevailing over Trump’s tariff stance was expressed lucidly by von der Leyen when she said before the talks, “We both stand to lose from a world of spheres of influence and isolationism, and we both stand to gain from a world of cooperation and working together. But I believe that this modern version of great-power competition is also an opportunity for Europe and India, to reimagine partnership.”

It is a tough deal to work out because there have been difficult issues at stake for each side. The EU wants India to reduce tariffs on more than 100 per cent on import of European cars, whiskey and wine. India on its part wants relaxation of immigration rules which would enable the skilled workforce, especially in the Internet-related area, to work in EU. The demand has now broadened to include with India demanding easier access for Indian textiles, and also drugs and chemicals. India is also opposed to the new tariffs of 20 per cent to 35 per cent that EU is set to impose from 2026 on carbon-goods like steel, aluminium and cement.

Ajay Srivastava of New Delhi-based think-tank Global Trade Initiative says, “It won’t be easy to conclude the free trade talks unless India agrees to drastically cut tariffs on automobiles and other products that could hit domestic industry.” The trade turnover between the two sides, the largest in goods, stands at $137.5 billion at the end of 2023-24.

The fact that the talks have been held at the highest level between Prime Minister Modi and EC President von der Leyen is an indication that the two sides want to break the deadlock, and they want to move ahead with a pact that would enhance trade relations between the two.

Prime Minister Modi said at the joint press conference, “We have prepared a blueprint for collaboration in the areas of trade, technology, investment, innovation, green growth, skilling and mobility.” He said officials have been asked to reach a deal by the end of the year.

Both India and the EU occupy the middle rung compared to the two largest economies, the United States and China, which are the top two. Things were easy for both EU and India in their trade ties with the United States until Mr. Trump came along.

On the other hand, the EU and India have not been too happy with trade ties with China because both felt that their markets have become dumping grounds for the mass-produced cheap goods from China, and they have been at a loss as to how to counter it. Both EU and India are keen to forge other trade relations which would make them less dependent on the United States and China.

Of course, EU and India are not in a position to cut off imports from China. But they would like to curb them. The EU-India trade would serve as an alternative. There are also economic complementarities between India and EU. India is a leader in tech services and EU dominated manufacturing and technology. And both are sensitive to the issue of climate change challenge. They are not throwing away green precautions as Mr. Trump has done for the United States.