Getting Closer to Europe

INDIA AND THE European Union (EU) are two economic powerhouses working together at this moment to recognise the immense potential of strengthening trade and economic cooperation, seeking to conclude negotiations for a Free Trade Agreement (FTA) by year-end. The EU and India are driven by mutual strategic interests and recent shifts in the global tariff war triggered by decisions of the US administration.

Trade dynamics illustrate a positive trajectory for India and the EU, underscoring how a comprehensive FTA could play a transformative role. It could strategically position both partners to navigate complex global trade challenges while fostering a deeper cultural and diplomatic exchange. India’s trade with the EU has witnessed remarkable expansion over the last decade. The Union commerce ministry’s dashboard says Indian exports to the EU have nearly doubled since fiscal 2016-17. Exports rose impressively from $38,768 million (excluding the UK) in 2016-17 to $75,937 million in 2023-24. Exports dipped during the Covid-19 pandemic. However, trade has bounced back and has been increasing since 2021. Also, India hasn’t faced a trade deficit with the EU since 2019-20.

India maintained a trade surplus with 19 of 27 EU member states in 2023-24. Countries like the Netherlands, Spain, Italy and Portugal account for the most significant trade surplus, reflecting India’s increasing reach and competitiveness in these markets. However, this is not a complete picture of the EU. Countries such as France, Germany and Ireland have significant trade deficits with India.

Before delving into what commodity baskets drive EU countries’ trade surplus and deficit with India, it is crucial to understand their internal trade dynamics in the Indian context. In 2023-24, more than 53.96 per cent of EU exports to India were predominantly from just three countries: the Netherlands, Germany and Italy, at 29.46, 12.96, and 11.55 per cent, respectively.

The balance of India’s trade surpluses with the EU is particularly pronounced across commodity groups: textile products ($6,170 million), pharma products ($2,296 million), and agricultural commodities ($1,958 million). Among broad commodity groups, the top 10 principal commodities account for over 58 per cent of India’s exports to the EU, highlighting its export strengths. These commodities include petroleum products, iron and steel, readymade garments (mainly cotton and related accessories), drug formulations and biological products, and processed iron and steel products.

The top 100 in India’s export basket to the EU shows that Indian trade with the EU emphasises areas of substantial competitive advantage. The dominating export basket is reflected in mineral fuels and products, which in 2023-24 were valued at $19,196.30 million with an annual growth of 22.85 per cent. Due to India’s substantial refining capacity, these dominated 25 per cent of exports to the EU. Due to its strategic importance in Europe’s energy diversification efforts, India is a key supplier of petroleum-based products.

Electrical machinery and equipment ranks second at $7,966.76 million, with 2.43 per cent annual growth, indicating India’s growing capacity in electronics manufacturing, partly driven by global supply chain diversification trends. Other notable exports include nuclear reactors and mechanical appliances ($5,240.14 million, 2.42 per cent growth), organic chemicals ($5,012.48 million, (-)11.05 per cent growth), and iron and steel products ($4,692.39 million, up 14.2 per cent). These commodities underline India’s traditional strengths in heavy industry and chemical sectors critical to Europe’s manufacturing and industrial inputs.

Pharmaceutical products stood at $2,878.65 million, with an annual growth rate of 5.95 per cent, reinforcing India’s global leadership in generic pharmaceuticals and biologics, particularly post-pandemic. However, exports in articles of clothing saw negative annual growth of 6.82 per cent, indicating potential challenges in textile market access or changing consumer preferences towards sustainable and circular fashion in Europe—a vital strategic opportunity for cooperation and innovation under the proposed FTA.

The EU’s export dynamics with India shed The India-EU Free Trade Agreement can provide strategic resilience in an era of economic volatility further light on India’s strategic dependencies, underscoring the challenges and opportunities for deeper economic cooperation within the FTA framework. In 2023-24, Germany, France and Belgium significantly dominated EU imports into India, with 27.7, 12.96, and 11.77 per cent respectively, representing more than 50 per cent of total EU exports to India. These trends imply the potential for deeper engagement by other EU countries through a broader EU-wide framework for trade with India.

Further examination of the top 100 Indian imports from the EU shows reliance on high-value-added industrial and technological products, underscoring India’s current dependence on European technology and capital goods. Among the top imports in fiscal 2023-24 were nuclear reactors, boilers, machinery, and mechanical appliances at $12,901.35 million, with annual growth of 17.19 per cent, followed closely by electrical machinery and equipment at $10,227.03 million, with a significant annual growth rate of 35.49 per cent. Substantial import of aircraft and spacecraft parts at $5,446.31 million, 13.76 per cent of the yearly growth, also shows India’s dependence on advanced European aerospace technologies. Overall, India’s import basket demonstrates a strategic economic dependency on Europe’s sophisticated manufacturing, technological innovation, and precision engineering, which originates mainly in Germany, France and Belgium.

On the whole, the EU-India import and export trends reveal a complex picture for finalising the FTA, revealing opportunities and vulnerabilities. India’s pronounced import dependency on hightech and capital-intensive European products implies its need to advance domestic production capacities, incentivising European investments, and fostering technology transfer through the FTA framework. This is also reflected in the export basket, making it imperative for India to transition from upstream raw material and intermediate goods production to downstream, high-value-added activities, including brand ownership and sustainable production practices. Leveraging India’s cultural heritage in textiles and pharmaceuticals can elevate Indian brands directly into European consumer markets.

Similarly, India’s future electric mobility goals, circularity in the textile market, and push towards EVs align with Europe’s technological expertise, R&D strengths, and growing automotive industry. By leveraging complementary advantages both sides can foster partnerships that drive mutual competitiveness and facilitate technology transfer, infrastructure investments, and co-developed market access.

A well-structured FTA could foster this integration by providing intellectual property protection, improving market access, and supporting Indian brands in their transition from suppliers to internationally recognised innovators. For instance, the country’s rich textile heritage and traditional craftsmanship can significantly engage European markets through effective branding, strengthening quality control, design innovation, and sustainable practices. This would further underscore opportunities to deepen trade, facilitate crosscountry partnerships in technology transfer and investments in sectors like the circular textile industry and electric mobility, rebalance trade deficits, and strategically leverage cultural exchanges.

Recent protectionist shifts in global trade policies, exemplified by the US administration’s move towards a reciprocal tariff strategy, and the strategic need for regional agreements can force countries to recalibrate their economic partnerships, perhaps making the timely conclusion of the FTA imperative for both the EU and India. The timing is perfect. By reducing dependence on volatile external markets, an FTA could shield the economies from external shocks and create a stable trade environment.

A successful conclusion of the EU-India FTA would not only symbolise economic integration— a strategic alliance poised to strengthen geopolitical collaboration—but robust trade statistics could also validate the potential of regional trade agreements in an era of global economic volatility. This could in turn underscore the mutual benefits of deeper economic integration, reaffirming the resilience provided by ambitious FTAs.

Economic crisisgeopoliticsIndia-EU Free TradeIndia-US bilateral relationstrade and tariffWeb Exclusive