India-EU Free Trade Agreement Set to Enhance Economic Partnership
The highly anticipated India–European Union free trade agreement (FTA), scheduled for announcement on January 27, is poised to deliver significant economic benefits rather than pose threats to domestic industries, according to a comprehensive analysis released by the Global Trade Research Initiative (GTRI) on Sunday.
Structural Complementarity Drives Mutual Benefits
In an era where global trade dynamics are increasingly influenced by tariffs, geopolitical considerations, and supply-chain realignments, the India-EU economic relationship demonstrates remarkable clarity of purpose. The two economies are not competitors but strategic partners operating at different stages of the value chain.
India primarily focuses on labour-intensive and downstream production activities, while the European Union specializes in supplying capital goods, advanced technology solutions, and sophisticated industrial inputs. This structural complementarity creates a natural synergy that makes the FTA particularly promising.
"This structural complementarity explains why an India-EU free trade agreement is likely to lower costs and expand trade rather than threaten domestic industry," emphasized GTRI Founder Ajay Srivastava during the announcement of the research findings.
Trade Volume and Expected FTA Gains
During the fiscal year 2025, India–EU goods trade surpassed the impressive milestone of $136 billion. The proposed tariff reductions under the FTA are expected to generate multiple benefits:
- Reduction of input costs for manufacturers
- Deeper integration of value chains between the two economies
- Significant expansion of trade volumes
These represent classic FTA advantages that typically benefit both producers and consumers across participating nations. Indian exports to the EU, which include smartphones, garments, footwear, tyres, pharmaceuticals, auto parts, refined fuels, and cut diamonds, largely replace the EU's imports from third countries rather than competing directly with European manufacturing.
The European Union exports high-end machinery, aircraft, core electronic components, chemicals, quality medical devices, and metal scrap to India. These products serve as critical inputs for India's manufacturing facilities, recycling industry, and MSME clusters, ultimately enhancing productivity and export competitiveness.
"Tariff elimination therefore compresses input costs instead of crowding out industry," Srivastava further elaborated.
Detailed Analysis of India's Imports from the EU
India's goods imports from the European Union reached $60.7 billion in FY2025, predominantly concentrated in capital-intensive, technology-driven, and input-critical products:
- High-end machinery emerged as the largest import category at $13 billion, including turbojets ($810 million), industrial control valves ($418 million), and specialized industrial machines ($343 million). India currently lacks large-scale domestic manufacturing capabilities for such advanced capital equipment, making these imports essential for industrial and infrastructure development.
- Electronics imports totaled $9.4 billion, led by mobile phone parts ($3.7 billion) and integrated circuits ($890.5 million), which are crucial components for India's burgeoning smartphone assembly and electronics manufacturing ecosystem.
- Aircraft imports amounted to $6.3 billion, while medical devices and scientific instruments reached $3.8 billion, and specialized medicines totaled $1.4 billion—products that India largely does not produce domestically.
- Waste and scrap imports stood at $2.1 billion, including aluminium scrap ($632 million) and brass scrap ($534 million). GTRI noted that India relies on imported scrap materials due to insufficient domestic availability for its recycling industry and MSMEs.
Comprehensive Breakdown of India's Exports to the EU
India's exports to the European Union amounted to $75.9 billion in FY2025, dominated by downstream and labour-intensive sectors:
- Refined petroleum products constituted the largest export category at $15.0 billion, led by diesel exports of $9.3 billion and aviation turbine fuel worth $5.4 billion.
- Electronics exports reached $11.3 billion, including $4.3 billion worth of smartphones, highlighting India's growing prominence as a large-scale manufacturing and assembly hub.
- Textiles and apparel remained a crucial export segment, with garment exports totaling $4.5 billion (girls' suits alone accounted for $822 million), supported by textile exports worth $1.6 billion and made-ups valued at $1.2 billion—sectors that Europe largely exited decades ago.
- Other significant export categories included machinery and computers worth $5.0 billion (including turbojets valued at $756 million), organic chemicals exports at $5.1 billion, iron and steel at $4.9 billion, and pharmaceuticals at $3.0 billion.
- Gems and jewellery exports to the EU totaled $2.5 billion, driven mainly by cut and polished diamonds worth $1.6 billion.
- Automotive exports reached $2.2 billion, led by auto parts ($1.6 billion), followed by tractors ($181.8 million), motorcycles and scooters ($164.7 million), dumpers ($72.2 million), and cars ($32 million).
- Additional labour-intensive exports included tyres worth $890 million, footwear valued at $809 million, and coffee exports of $775 million.
Limited Alcohol Trade Between the Economies
Alcohol trade between India and the EU remains relatively marginal in the broader trade relationship. India exported wines worth $1.4 million and spirits worth $24.5 million to the European Union.
Imports from the EU were comparatively higher, with wines valued at $7.9 million and spirits at $87.8 million, reflecting Europe's established dominance in premium alcohol products and global market leadership in this sector.
The comprehensive GTRI analysis concludes that the India-EU FTA represents a strategic economic partnership that leverages complementary strengths, with the potential to create substantial mutual benefits while minimizing disruption to domestic industries on both sides.
