Why India must tread cautiously on EU free trade agreement

Like ancient Greek envoys treading the rocky slopes of Mount Parnassus—each wary of the other’s hidden dagger—India now faces negotiations with the European Union that are as delicate as they are consequential.

India’s bilateral trade in goods with the EU was $137.41 billion in 2023-24. Significant exports to the EU were $75.92 billion, with imports of $61.48 billion. A fat yearly trade surplus.

The stakes are high: while the allure of a win-win deal—a standout, headline-making arrangement—beckons, prudence demands that India limit its free trade ambitions to a measured, selective engagement.

In recent remarks, Ursula von der Leyen, the EU commissioner, said that as the two countries look to wrap up the free trade agreement (FTA) in 2025, she wants her negotiators to ‘surprise’. If New Delhi is not both careful and calibrated, this could be a nasty surprise. This sentiment encapsulates the current zeitgeist: rather than embracing a comprehensive liberalisation that risks overexposure, India should pursue a smaller deal that focuses on sectors where mutual gains are more clearly defined. Key among these are electric vehicle (EV) batteries and technology, where collaboration could unlock growth and efficiency gains. In parallel, a liberal regime for the free movement of skilled labour emerges as a vital counterweight to restrictions imposed by Washington. For Europe, a younger, better-trained workforce willing to integrate is a bonus.

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Yet not all sectors share this optimism. The Indian automotive centre, long a symbol of domestic ingenuity, is particularly vulnerable. The EU’s insistence on opening markets will hurt Indian, Japanese, and Korean competitors and threatens to undermine local strengths. They are lobbying hard against this. Moreover, the carbon tax championed by European policymakers will stifle the growth in India. It is a tariff barrier, and India must not agree to it. In these contexts, India must play a good hand, carefully calibrating concessions to avoid ceding critical strategic ground.

Perhaps the most thorny challenge lies in agriculture—a sector where India’s competitive strengths have historically lagged behind the EU, which has massive agriculture subsidies even bigger than India’s. Dutch horticultural techniques and precision in the production of vegetables, dairy products, and cut flowers present a formidable contrast to the more diffuse strengths of Indian farming. India, therefore, cannot afford to open up too broadly in agriculture; instead, it might selectively allow market access for wine and spirits, where the cultural cachet and demand dynamics differ markedly. In this way, India can protect its domestic agriculture while still reaping the benefits of selective liberalisation.

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Geopolitics, even the uninvited partner at the negotiation table, will further constrain any comprehensive deal. India could well leverage its strategic relationship with the US, convincing Washington to slow the reduction of tariffs as a quid pro quo for limiting the scope of the EU agreement. In a twist of realpolitik, India should actually bypass the cumbersome EU machinery altogether. India might be much better off instead to strike a side-deal with France and Germany, nations that together account for 40 per cent of the bloc’s GDP, thereby securing a more tailored and potentially advantageous arrangement.

Ultimately, the challenge is to negotiate a pact that maximises strategic sectors for both camps while safeguarding vulnerabilities, a task that requires both finesse and an unyielding sense of purpose. As negotiations draw to a close, one is reminded of the ancient Greek parable of Diogenes and his lantern—searching in the daylight for honesty in a world shadowed by mistrust. In this modern contest of wills, India must illuminate the path forward, giving concessions for sure but securing the areas of strength even as both sides remain ever cautious in the dim light of mutual suspicion.

The writer is a senior journalist with expertise in defence. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.