Brussels, 5 March 2025
By Lizza Bomassi and Calvin Nixon
*The authors are grateful to Pritesh Samuel, Head of Business Intelligence, Dezan Shira & Associates, for taking the time to inform our research.
In late February, the EU sent its highest-level delegation to India – the EU’s full College of Commissioners, led by European Commission President Ursula von der Leyen. The delegation addressed key areas for deepening ties – from trade and technology to security and defence – sending a clear message to New Delhi: India matters. Symbolically, the visit signalled that democracies can still unite around common goals.
Choosing India for the College’s first visit outside Europe carries particular weight given today’s shifting geopolitical landscape. As Russia’s war in Ukraine enters its fourth year and with the transatlantic relationship in free fall, Europe is increasingly looking to the Indo-Pacific to buttress its crumbling alliance structure. India, after all, is the world’s largest democracy and a rising economic power. Despite their compatibilities, the relationship between Europe and India has been anything but straightforward. Nowhere is this more evident than with the EU-India Free Trade Agreement (FTA). Talks began in 2007 but some two decades on, the deal remains in limbo, stalled by differences over market access and regulatory standards. While the EU has scaled back its ambitions over time, India remains protective of its heavyweight industries, particularly agriculture and textiles. With renewed momentum to finalise a deal, a more integrated sector-based approach could offer a way forward.
Resolving the stalemate
Both sides have proven capable of striking major trade deals with other partners. India has inked FTAs with Australia, the European Free Trade Association (EFTA), Mauritius and the United Arab Emirates (UAE). Meanwhile, among others in the Indo-Pacific, the EU has finalised agreements with Japan, New Zealand, Singapore, South Korea and Vietnam.
The impasse is certainly not due to lack of effort. Negotiators have spent years navigating a labyrinth of technical and political challenges, ranging from agricultural market access and intellectual property rights to data privacy and sustainability standards. But the heart of the issue is a matter of scale and trust. India’s vast and economically diverse market makes negotiations far more complex than in relatively smaller economies.
India fears regulatory overreach, while the EU anticipates non-compliance.
This raises a key question: does the political will to finalise the EU-India deal still exist? With ambitions set on concluding the FTA by the end of 2025, the answer appears to be yes. Yet, a trust deficit persists, creating a cycle of misaligned expectations: India fears regulatory overreach, while the EU anticipates non-compliance. EU policies like the Carbon Border Adjustment Mechanism (CBAM) and the Corporate Sustainability Due Diligence Directive (CSDDD) are seen in New Delhi as over-regulatory and burdensome.
At the same time, India’s ambitions to join the ‘developed nations’ club by its centennial in 2047 requires massive industrial and technological upgrades. The FTA could facilitate the essential technology transfers needed for this transformation. Yet, Europe remains wary. Concerns over intellectual property (IP) leakage – especially with well-documented cases of European technology ending up in Russian hands via third-party intermediaries – make Brussels reluctant to ease its strict IP regime.
Prioritising flexibility over perfection
Given these challenges, what is the path forward? A modular FTA could offer a potential solution by incorporating sector-specific ‘reservations’, allowing both sides to retain control over particularly sensitive industries while still committing to broader trade liberalisation.
FTAs between the EU and its partners vary in how they apply these exceptions. The EU-Singapore FTA has embraced a highly flexible model, allowing both sides to exempt certain sectors from full market liberalisation. The EU-Vietnam FTA represents a middle ground, including these types of reservations but with clearer pathways for more gradual liberalisation. India, by contrast, has historically taken a more protectionist approach in its trade deals. Yet, as it looks to expand its global economic footprint, New Delhi’s 2023 Foreign Trade Policy signals a potential shift toward greater flexibility.
Modular approaches are not without precedent. The EU and India are already testing sector-specific cooperation through their Trade and Technology Council (TTC), demonstrating that flexible pathways are possible. Yet while the TTC shows that sectoral cooperation can work, it remains a ‘strategic coordination mechanism’ rather than a legally binding framework. The key is expanding this model into the FTA to allow both sides to secure early wins while leaving space for complex negotiations, say over agriculture, to evolve gradually. Engaging subnational actors, such as provincial governments and industry representatives, more systematically could build local ownership of the FTA while strengthening due diligence checks and ‘state of play’ updates, ensuring negotiations remain responsive to evolving domestic concerns.
Rather than letting regulatory frictions escalate, the EU should frame environmental cooperation as a solution to one of India’s most pressing economic challenges.
Another challenge is regulatory overreach. The EU’s CBAM and CSDDD are deeply unpopular in India. While intended to prevent carbon leakage and uphold sustainability commitments, they are perceived as disproportionately burdensome for developing economies. For meaningful progress, the EU must rebrand these policies not as trade barriers, but as part of a shared economic resilience strategy. India is already facing severe environmental and climate risks – from unbearable heatwaves to poisonous air and river pollution – that pose direct threats to long-term economic stability. Rather than letting regulatory frictions escalate, the EU should frame environmental cooperation as a solution to one of India’s most pressing economic challenges. Clean tech cooperation, as seen in the International Solar Alliance and the Joint Task Force on Green Hydrogen, demonstrates that environmental cooperation can be a winning strategy for both sides.
The moment to move forward
At its core, the success of the EU-India FTA depends on designing a framework that reflects both sides’ evolving economic priorities. This FTA could contribute significantly to the EU’s efforts to stabilise democratic alliances and diversify global trade routes. But only if both parties can move towards a deal that balances economic ambitions with regulatory realities.
Source – EU-ISS