The 16th India-European Union Summit is set to take place today and some economists credit Donald Trump’s aggressive trade policies for nudging the two sides toward agreement. Arguably —- towards a free trade agreement. Without Trump’s ‘America first’ approach, his heavy use of tariffs, and his tendency to alienate allies, India and the EU might not have found the courage to strike a deal, especially in the current geopolitical environment.
India’s Prime Minister Narendra Modi invited the EU’s top two officials, Ursula von der Leyen, president of the European Commission, and António Costa, president of the European Council, as guests of honour for Republic Day on January 26. At a follow-up EU-India summit on Jan 27, both sides hope to finalise a free-trade pact, among other agreements.
The agreement opens the door to free trade in goods between India and the 27-member European Union. Together, India and the EU account for about a quarter of the world’s total economic output and represent a combined market of nearly 2 billion consumers.
Trump’s tariff policies helped pave the way for India-EU trade deal
Europe and India share similar strategic concerns. “They are trying to preserve their strategic autonomy as secondary players in their respective spheres, India v China in the Indo-Pacific and Europe v America in the Atlantic,” Chietigj Bajpaee of Chatham House, a British think-tank, told the Economic Times.
The deal is as much about long-term cooperation as immediate economic benefit. A security and defence partnership will be signed alongside the free-trade pact. “Such a partnership shows a higher level of trust,” said Garima Mohan of the German Marshall Fund, speaking to the Economic Times.
Calling it a win for both sides, India’s Trade Secretary Rajesh Agrawal said, “It will be a balanced, forward-looking deal for better economic integration with the EU. The deal will propel trade and investment between both sides.”
In practical terms, an EU-India trade deal will not dramatically change trade flows. India is only the EU’s ninth-largest trading partner, accounting for 2.4% of its total trade, compared with 17.3% with the US and 14.6% with China. EU exports of goods to India total just under €50 billion ($59 billion) a year. Meanwhile, with €26 billion in services exports, the total is just 0.4% of EU GDP, according to the ET report.
The deal may not boost European growth much, partly because the current average tariff rate on EU exports to India is only around 9%. Some cuts will matter, however, such as reducing tariffs on cars from as high as 110% to 40%. Non-tariff barriers, including quality controls and government procurement rules, will also be addressed.
India sees a bigger benefit
For India, the deal could ease the pressure of tariffs imposed by Trump, including duties on Indian goods and additional tariffs for the purchase of Russian oil. According to the report from ET, India’s €105 billion in exports to the EU roughly matches the $129 billion it exported to the US in 2024.
The EU recently reduced the list of tariff rebates under its generalised system of preferences, meaning higher tariffs would apply to about 2.7% of Indian exports without a deal. Still, the EU’s current average tariff on Indian imports is just 4%.
Over the years, India has turned west for trade, signing a deal with Britain in July. The EU, on the other hand, is exploring opportunities wherever they arise.On January 17, it signed a deal with Latin America’s Mercosur trade bloc, including Argentina, Brazil, Paraguay, and Uruguay. However, the European Parliament sent the pact for judicial review on January 21.
However, tensions will persist. India is not abandoning its long-standing ties with Russia despite the war in Ukraine. India remains a major buyer of Russian oil, and its exports of dual-use goods that could aid Russia’s war effort frustrate the EU. The summit will boost the India-EU relationship, though much of the real activity may occur in bilateral deals with individual European nations. India and France have long-standing ties, while Germany is showing growing interest.