India–EU FTA could give major fillip to trade growth, boost exports by $50 billion

As India and the European Union gear up for what is being billed as a historic trade agreement, the political signalling around the deal has become hard to miss. European Commission President Ursula von der Leyen is attending India’s Republic Day parade as chief guest, a gesture that has added momentum to negotiations widely described as the “mother of all trade deals,” aimed at ironing out the last remaining roadblocks.

The timing of the agreement is significant. The India–EU deal is taking shape at a moment when US President Donald Trump has increasingly weaponised trade and tariffs to extract favourable deals for Washington. Against this backdrop of rising protectionism, the proposed pact carries the potential to materially alter India–EU trade relations.

According to a report by Emkay Global Financial Services, a comprehensive bilateral trade agreement between India and the EU could boost India’s exports to Europe by as much as $50 billion by 2031, led largely by medium-technology manufacturing. Bilateral trade between India and the EU has already grown by more than 40 per cent over the past five years.

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“The deal could act as an effective counter-cyclical buffer by improving India’s export participation in global value chains, expanding market access, and supporting supply-chain diversification. With the EU accounting for around 17 per cent of India’s goods exports, we estimate that a possible bilateral alignment could lift India’s exports to the EU by about $50 billion by 2031, led by medium-tech manufacturing,” the report said.

India’s exports to Europe have steadily moved up the value chain over time, with higher-value products such as electronics, jewellery and footwear gaining share over traditional labour-intensive exports. In FY26 year-to-date, exports to the EU accounted for 16.8 per cent of India’s total export basket, compared with about 17 per cent in FY25, equivalent to nearly 1.9 per cent of GDP.

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On the other hand, India’s imports from the European Union have remained broadly unchanged in composition. From Europe’s perspective, the deal assumes greater importance as EU exports to India account for just about 0.8 per cent of the bloc’s total exports, contributing to a widening trade deficit. India, however, is negotiating from a position of relative strength, having posted a trade surplus of around $15 billion with the EU in FY25. India’s exports to the EU stood at approximately $76 billion, compared with imports of about $61 billion.

The agreement becomes even more critical as Europe’s reliance on India has increased in the wake of sanctions imposed on Russia. Between FY22 and FY25, European demand for refined diesel and aviation fuel from India surged, with shipments rising by around 68 per cent over the period.

“Our quick assessments suggest that in case of a full-fledged and strong FTA deal, India’s goods export surplus with the EU could increase by more than $50 billion by FY31, with the EU’s share jumping to around 22–23 per cent from 17.3 per cent currently. With the EU accounting for about 16 per cent of India’s cumulative FDI and nearly one-third of India’s IT exports, the deal could offer meaningful upside to such flows,” said Madhavi Arora, chief economist at Emkay Global.

Sectorally, the EU remains one of India’s largest destinations for textile and apparel exports, accounting for roughly 35–38 per cent of outbound shipments in recent years. India, in turn, supplies about 5 per cent of the EU’s textile and apparel imports.

In calendar year 2024, China, Bangladesh, Turkey, Vietnam and India emerged as the top suppliers of textiles to the EU. If the FTA is concluded and tariffs are reduced from about 12 per cent to zero, India could gain a significant price competitiveness advantage, potentially overtaking rivals such as Vietnam and Bangladesh.

This would position India to capture a higher market share in segments such as knitwear, outerwear, and trousers, the report noted.

The proposed India–EU Free Trade Agreement is also expected to ease prices of bottled-in-origin IMFL and wines in India, mirroring the impact seen after the India–UK trade deal, which enabled cheaper scotch imports. While the UK agreement was particularly significant due to Scotch’s geographical indication (GI) status, the EU pact would help reduce dependence on a single sourcing country. Given that most IMFL sold in India is now domestically produced, the deal is unlikely to have any material impact on the broader IMFL segment.

Wine, which accounts for about 1 per cent of India’s alcohol-beverage market, is largely imported from the EU, though it does not enjoy GI protection. Of the roughly ₹15 billion domestic wine market (at ex-winery prices), imports account for about ₹5 billion.

Pernod Ricard, the French multinational, controls nearly half of the imported wine segment through its Jacob’s Creek brand, which it divested to an Australian wine holding company in April 2025.
While lower import prices following the India–EU FTA could pose a near-term challenge for domestic players such as Sula Vineyards, analysts expect the agreement to expand overall category penetration, supporting stronger long-term growth.

In anticipation, Sula is looking to scale up its imported wine distribution business, currently limited to brands such as France’s Le Grand Noir and Argentina’s Trapiche.