How The India-EU FTA Could Transform Investments: Unlocking New Opportunities – OpEd |
In the face of the Trump administration’s vacillating policies, India and the EU are forging long-term ties, which are not merely tactical. This partnership seeks to serve the dual objectives of the EU, to de-risk from American protectionism and for India to diversify supply chains by integrating with countries that share its values. Both have faced trade policy threats from the US, including tariff escalation and curtailment of market access, stemming from their own sovereign decisions: India’s trade relations with Russia and the US’s dispute with the EU over Greenland. These issues were sidestepped via diplomatic channels. In light of these events, the India-EU FTA paves the way for strategic autonomy in trade policy.
This trade pact is termed the “mother of all deals,” is a major agreement for both sides. On a comparative basis it is better positioned than the EU’s trade deal with Mercosur, as India represents a large democratic market, unlike South American economies, which are riddled with environmental controversies. The EU is among the largest foreign investors in India, with an FDI stock of €140.1 billion (2023), but this remains lower than EU investments in China (€247 billion). However, global developments are increasingly pivoting toward a China-plus strategy, wherein India is poised to act as a crucial player, capturing benefits from shifting supply chains in Asia.
India and the EU collectively represent nearly a quarter of global GDP and more than one-fifth of the world’s population, but their mutual trade constitutes only about 0.6% of global trade. Scope remains to maximize the potential of this trade agreement by promoting bilateral investment. For India, the investment flows into its various sectors such as manufacturing, infrastructure and energy, to name a few, not only signify improving prospects of job creation, growth in GDP and strengthening underlying economic indicators, but also have far-reaching ramifications, advancement of technologies, industrial modernization, skill upgradation, managerial efficiency and benchmarking of global best practices.
For the EU, it represents a grand entry into a huge market with a young workforce, rapid urbanization, rising incomes and expanding consumption across various sectors. According to the Edelweiss Mutual Fund report, by 2030 India’s consumer market is on track to expand by 46 per cent, making it the second-largest globally.
The India-EU FTA provides tariff elimination for sectors like leather goods, textiles & apparel, plastics and chemicals. This would boost investment in these sectors. Tariff reduction enhances export potential as it improves access to the EU market, along with lower labour costs in India, thereby attracting investment for the development of these sectors in terms of logistics and infrastructure. This would catalyse the development of industrial clusters to serve as export-oriented hubs. Furthermore, considering the higher labour intensity in sectors like leather, textiles and gems & jewellery, this would boost employment in these sectors. This could also translate into increased investment in SMEs.
Other gains are to be unlocked in the automotive segment owing to the gradual decline in automobile tariffs. This would enable greater access for European automakers. The FTA also enables pivoting production strategies in favour of local manufacturing and component ecosystems in India. Owing to approximately a fifth lower labour cost than Chinese firms, and adequate legal framework as well as English-speaking workforce. The EU can integrate supply chains much like Japanese automakers, which see India as an export base for creating it as an EV production hub. Thus, this would encourage investment in manufacturing plants, supply of components, and EV technology partnerships.
Given the growing traction of the AI domain globally and India’s AI push in the backdrop of the India AI Impact Expo held in February 2026, there are signals of greater alignment in the sphere of services and digital sectors. India aims for easier mobility norms for its IT professionals as well as the EU’s “data secure” status for its IT services. Investment flows into the sector would expand IT sourcing from Indian firms and create prospects for partnerships in the digital domain.
Over the years, bilateral trade and investment have grown; however, they still fall short of their potential. The current negotiations have concluded, with the investment protection agreement still pending, a crucial element for ensuring stability and policy certainty for investors. Since India’s shift in stance in 2015, when it terminated the old BIT framework in favour of the 2015-16 Model BIT, investor protection has been significantly reshaped, resulting in a tighter, state-leaning framework that narrows investor protections and prioritizes domestic remedies. Despite these changes, India has remained an attractive high-growth market, and as of 2025, it has reaffirmed its commitment to its BIT framework to encourage investment.
Other factors, such as regulatory barriers and certification requirements aligned with EU standards, continue to influence outcomes to a large extent. These challenges stem from differing economic structures, domestic priorities, and regulatory frameworks. The impact of lower tariffs on India’s auto industry in the face of European competition, along with stringent environmental regulations, labour protection, and product safety norms, may result in higher compliance costs for Indian firms. The CBAM policy also affects exports from carbon-intensive industries. Apart from these policy-related hurdles to seamless investment flows, the lengthy ratification process involving the EU’s 27 member states, alongside rising geopolitical uncertainty, may further dampen investment prospects.
The EU-India FTA seeks to enhance productivity and competitiveness for both economies. To realize these benefits, the EU could expand its engagement by sending delegations to India to explore new areas of partnership, linking European industrial bodies to opportunities in the Indian market, and supporting EU SMEs so they can leverage India’s diversified economy. Indian firms, too, have significant opportunities to reorganize supply chains. However, this is contingent on strengthening the investor protection framework, making it more transparent and accessible while retaining policy autonomy to serve public interest. Integration into European supply chains could further boost investments, bringing in flows of advanced and green technologies to support a sustainable developmental trajectory.
This agreement could position India to deepen its integration into global investment networks, an imperative in a time marked by supply chain disruptions, geopolitical uncertainty, and broader economic shocks. At its core, a framework aligning India’s regulatory priorities with the EU’s emphasis on investor certainty could unlock the full potential of the India-EU partnership.