India-EU trade talks

India-EU trade talks set to resume after prolonged hiatus

On June 27th India and the EU will relaunch the first round of formal free-trade negotiations after a hiatus of nine years. The deal aims nearly to double bilateral trade over five years, from around US$115bn in 2021.

A deal would have multiple benefits for both sides, including enhanced market access for businesses, lower tariffs, easier geographical movement of people for trade and employment purposes and access to a wider variety of goods. EIU believes that negotiations with the 27‑member trade bloc will be prolonged beyond early 2024, which is when India and the EU (India’s second-largest trading partner after the US) hope to have concluded talks. The deal was first proposed in 2007, but negotiations were abandoned in 2013.

India's trade with the EU has been robust

Areas prompting particular resistance will include market access on both sides, as well as protection of intellectual property, on which India lacks strong legal enforcement. The EU will want increased market access in sectors that are not fully liberalised, such as telecommunications, civil aviation, defence and pharmaceuticals.

The EU is also likely to require greater regulation of digital trade and the opening-up of India’s domestic services markets (through retail trade in food products, among others). However, India will be reluctant, as domestic producers could resist increased competition if these sectors open up. India will look for the removal of restrictions in Europe on the movement of Indian professionals, which could be politically difficult for many European countries.

The meeting between the president of the European Commission, Ursula von der Leyen, and the Indian prime minister, Narendra Modi, in April 2022, as well as Mr Modi’s official visit to Europe in May, gave the negotiations greater traction. Progress on two important free-trade agreements (FTAs) signed by India this year with the UAE and Australia has also spurred both sides to work on the India‑EU deal.

In order to expedite negotiations, the deal has been split into multiple channels. Besides the FTA, these include the Investment Protection Agreement, which aims to provide a legal framework for cross-border investment, to strengthen investor confidence. A Geographical Indicators agreement will establish a regulatory environment to facilitate trade in products that have such status, including handicrafts and agricultural commodities. 

The two parties aim to conclude all three deals simultaneously, although we believe that this is overambitious. Amid multiple areas of friction, a more diluted form of the deal is likely to be concluded over 2025‑26, with negotiations continuing on other areas beyond that period.

The analysis featured in this piece can be found in EIU Viewpoint, our new country analysis solution. EIU Viewpoint provides unmatched global insights covering the political and economic outlook for nearly 200 countries.