Overview
The European Union (EU) is one of India’s most important trade and investment partners, with the relationship increasingly extending beyond merchandise trade to:
- services;
- investment;
- digital technologies;
- clean energy;
- resilient supply chains;
- critical technologies.
In 2025, bilateral trade in goods was about €118 billion, making the EU India’s third-largest trading partner and accounting for roughly 11% of India’s total merchandise trade.
Trade Composition
Major Indian Exports to the EU
India exports:
- engineering goods;
- petroleum products;
- pharmaceuticals;
- chemicals;
- textiles and apparel;
- gems and jewellery;
- leather and footwear;
- machinery;
- agricultural and processed-food products.
The EU is particularly important for India’s labour-intensive manufacturing exports.
Major EU Exports to India
India imports from the EU:
- machinery and industrial equipment;
- aircraft and transport equipment;
- chemicals;
- pharmaceuticals;
- electrical equipment;
- precision instruments;
- advanced manufacturing technologies.
The relationship therefore combines consumer trade with substantial capital and intermediate-goods flows.
India–EU Free Trade Agreement
India and the EU originally began FTA negotiations in 2007, but negotiations stalled in 2013 over differences concerning tariffs, services, investment and regulatory issues.
Negotiations were formally relaunched in 2022.
A major breakthrough occurred on 27 January 2026, when India and the EU concluded negotiations on the Free Trade Agreement.
However, an important distinction is:
Negotiations concluded ≠ Agreement in force
The text remains subject to legal revision, signature and completion of the respective internal procedures before it becomes legally binding.
Market Access under the FTA
The negotiated agreement provides extensive tariff liberalisation.
For Indian exports:
- preferential access covers about 96.8% of EU tariff lines;
- these lines account for roughly 99.5% of India’s exports to the EU;
- around 90.7% of Indian exports by value are expected to become duty-free from entry into force.
Labour-intensive sectors expected to benefit include:
- textiles and apparel;
- leather and footwear;
- gems and jewellery;
- engineering goods;
- selected agricultural and processed-food products.
India has retained protection for sensitive agricultural sectors, including products such as dairy, cereals and poultry.
Services and Mobility
Services are an important component of the partnership.
The negotiated FTA provides Indian access across 144 services subsectors, including areas such as:
- IT and IT-enabled services;
- professional services;
- business services;
- education services.
It also creates frameworks for temporary business mobility and continues engagement on social-security arrangements.
For India, improved services access is important because its comparative advantage with the EU extends considerably beyond merchandise exports.
Investment and Geographical Indications
The broader India–EU negotiations comprise three distinct tracks:
- Free Trade Agreement;
- Investment Protection Agreement;
- Agreement on Geographical Indications.
While FTA negotiations were concluded in January 2026, the Investment Protection Agreement and GI Agreement remain under negotiation.
These negotiations address issues such as:
- investor protection;
- dispute settlement;
- protection of region-specific products;
- regulatory certainty for businesses.
Carbon Border Adjustment Mechanism
A major friction point is the EU’s Carbon Border Adjustment Mechanism (CBAM).
Its definitive regime began on 1 January 2026 and initially covers sectors including:
- iron and steel;
- aluminium;
- cement;
- fertilisers;
- hydrogen;
- electricity.
CBAM requires carbon costs to be reflected in specified carbon-intensive imports entering the EU.
India has raised concerns because industries such as steel and aluminium remain relatively carbon-intensive and may face higher compliance costs.
Importantly, the 2026 India–EU FTA does not exempt India from CBAM.
This makes industrial decarbonisation increasingly linked to export competitiveness.
Trade and Technology Council
The India–EU Trade and Technology Council (TTC) provides a parallel strategic framework connecting trade with emerging technologies.
At its third meeting in July 2026, cooperation was expanded in areas including:
- semiconductors;
- artificial intelligence;
- quantum technologies;
- high-performance computing;
- 6G;
- clean technologies;
- resilient pharmaceutical and agri-food supply chains.
The two sides also agreed to begin formal negotiations on India’s possible association with Horizon Europe.
Strategic Importance for India
Closer economic relations with the EU can help India:
- diversify exports beyond traditional markets;
- attract high-quality investment and technology;
- integrate into European value chains;
- expand labour-intensive manufacturing;
- strengthen clean-tech and semiconductor cooperation;
- reduce excessive dependence on concentrated supply chains.
The EU also provides a large market for India’s pharmaceuticals, engineering goods, services and emerging green products.
Importance for the EU
India offers the EU:
- a large and rapidly growing market;
- diversification away from concentrated Asian supply chains;
- manufacturing and investment opportunities;
- skilled human capital;
- cooperation in digital and clean technologies;
- a major strategic partner in the Indo-Pacific.
The relationship is therefore increasingly shaped by economic security and supply-chain resilience, not merely tariff reduction.
Key Challenges
Major areas of friction include:
- CBAM and other environmental regulations;
- regulatory and product standards;
- agricultural market access;
- intellectual-property issues;
- mobility of professionals;
- investment-protection rules;
- sustainability requirements;
- implementation of rules of origin.
European sustainability regulation can become particularly important for Indian exporters even when tariffs are reduced.
Current Direction
The India–EU economic relationship has entered a qualitatively different phase after the conclusion of FTA negotiations in January 2026.
The emerging architecture now consists of:
FTA + technology cooperation + investment negotiations + green transition + resilient supply chains
The immediate challenge is moving from negotiated commitments to actual implementation, including signature and entry into force of the FTA.
Conclusion
India–EU trade relations are evolving from a conventional goods-and-services relationship into a broader strategic economic partnership. The 2026 conclusion of FTA negotiations is the central recent development, but its long-term impact will depend on implementation, services access, investment flows, industrial decarbonisation and India’s ability to meet increasingly stringent European regulatory standards.
