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India-EU Free Trade Agreement: Delays, Divergences, and Strategic Stakes

The negotiations for a comprehensive Free Trade Agreement (FTA) between India and the European Union (EU) have once again entered a phase of extended deliberation, and is now expected to spill into this new year. The next round of negotiations is scheduled for early January, indicating that despite sustained engagement, both sides remain far from a final consensus. What's interesting to note is, this delay is not merely procedural, it rather reflects a deep economic, regulatory, and strategic difference between the two major global economic blocs. An analytical examination of the negotiations reveals why the India-EU FTA has proven so complex, why its conclusion matters, and what its prolonged timeline signifies for global trade governance for the days to come.


At a fundamental level, the India-EU FTA is one of the most ambitious bilateral trade agreements currently under negotiation for our country. The European Union is India’s largest trading partner in goods, with bilateral trade exceeding USD 135 billion annually, while India at the same time represents one of the fastest growing major markets for European exports and investment. The negotiations, which was relaunched in 2022 after being stalled since 2013, aim to cover not just trade in goods but also services, investment, intellectual property rights, digital trade, government procurement, and sustainable development. This expansive scope significantly increases both the potential benefits and political sensitivity of the agreement, strengthening its core. 


Scope and Significance of India-EU FTA


We observe one of the primary reasons the talks have extended beyond earlier timelines is persistent divergence over market access. The EU has sought deep tariff liberalisation from India, particularly in sectors like automobiles, wines, spirits, dairy products, and industrial machinery. From the European perspective, India’s relatively high tariff regime represents a significant barrier to trade, and meaningful access to the Indian market is seen as a core justification for the agreement. India, however, has approached tariff reductions with caution. Sensitive sectors like agriculture and automobiles are closely tied to domestic employment, small producers, and political considerations. It is essential to take into account that rapid or extensive tariff cuts could expose Indian industries to competitive pressures that they may not yet be prepared to absorb, raising concerns about de-industrialization and rural distress.


Beyond tariffs, services trade has also emerged as a central yet contentious pillar of the negotiations. India’s comparative advantage lies in services, particularly information technology, professional services, and business process outsourcing. Consequently, India has pushed strongly for greater mobility of skilled professionals and mutual recognition of qualifications within the EU. However, services liberalisation in the EU is constrained by factors like domestic labour regulations, immigration policies, and political sensitivities across its member states. As a result, progress on mobility and market access for Indian service providers has been slow and uneven, contributing to the broader stalemate facing negotiators.


Market Access and Tariff Liberalization


Another major factor complicating the negotiations is the EU’s emphasis on regulatory standards, particularly in areas related to sustainability and climate change. The EU has increasingly integrated environmental objectives into its trade policy, most notably through mechanisms such as the Carbon Border Adjustment Mechanism (CBAM). CBAM seeks to impose carbon related charges on imports of carbon intensive goods such as steel, aluminium, and cement,  prevent carbon leakage and ensure fair competition for European producers. India has expressed serious concerns that such measures function as disguised protectionism and could erode the competitiveness of Indian exports. The challenge actually lies in reconciling the EU’s regulatory ambitions with India’s development priorities, a balance that has proven difficult to achieve within the framework of an FTA.


Intellectual property rights (IPR) and digital governance also further showcase these structural differences between the two negotiating partners. The EU has sought stronger IPR protections, including provisions that go beyond the World Trade Organization’s TRIPS agreement. India as we see is home to a large generic pharmaceutical industry, has historically resisted such demands, arguing over the years that overly stringent IPR rules could undermine access to affordable medicines both domestically and in developing countries. Similarly, in the digital domain, the EU’s insistence on data protection standards aligned with the General Data Protection Regulation (GDPR) raises concerns for the Indian firms, particularly smaller enterprises that may over time struggle to meet compliance costs.


Progress and Political Commitment


Investment protection and dispute settlement mechanisms also contribute to another area of friction. The EU at the same time has advocated for robust investor protection clauses, including enforceable dispute settlement systems. India, however, has become increasingly cautious about investor state dispute settlement (ISDS) mechanisms following past experiences where regulatory decisions were challenged by foreign investors. India’s revised approach thus emphasises domestic legal processes and limits the scope of international arbitration, creating a mismatch with EU expectations.


Despite these challenges, it would be misleading to interpret this delay as a failure of the negotiations. Several technical chapters such as customs facilitation, trade remedies, and transparency have already seen substantial convergence according to sources. Moreover, political commitment at the highest levels remains evident. Indian and European leaders have repeatedly reaffirmed their desire for an “early and balanced” conclusion, underscoring the strategic importance both sides attach to the agreement.


This is further explained by the broader strategic context, in which neither side is willing to abandon the talks despite prolonged negotiations. For India, the FTA is part of a broader trade diversification strategy that includes ongoing or proposed agreements with partners such as the United Kingdom, Australia, and Israel. Closer economic ties with the EU would help India reduce dependence on a narrow set of markets and integrate India more deeply into global value chains. For the EU, engagement with India is part of both its economic and geopolitical objectives, adding a counterbalance to overdependence on China and reinforcing partnerships in the Indo-Pacific region. At the global level, the FTA negotiations between India and the EU underline a significant evolution in the very trade agreements. 


Navigating Complexity Toward a Strategic Trade Partnership


Thus the extension of India-EU FTA talks into 2026 is best understood not as a setback but as an indicator of the agreement’s depth and significance. It is rather a measure of the complexity and importance of this agreement. Significantly, these negotiations entail bringing different societal and economic structures and development paths into harmony. Although there have certainly been some ups and downs with regards to these negotiations over the past few years, it is nevertheless apparent that both regimes are fully alive to the future importance and strategic implications of this agreement and its eventual realization. It seems that whether they succeed and finally result in an FTA agreement will rather have implications that have little to do with future trading patterns and implications for either side.


References:


Moneycontrol. 2025. “India-EU FTA Talks to Spill into 2026; Next Round Set for Early January.” Moneycontrol.  2026.https://www.moneycontrol.com/news/business/india-eu-fta-talks-to-spill-into-2026-next-round-set-for-early-january-13721853.html.


Observer Research Foundation. 2025. “India-EU Free Trade Agreement: Obstacles, Opportunities and the Road Ahead.” ORF Online. 2026.https://www.orfonline.org/expert-speak/india-eu-free-trade-agreement-obstacles-opportunities-and-the-road-ahead.


 
 
 
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