India-EU Relationship – Significance & Challenges – Explained Pointwise

The India-EU trade agreement, which is expected to be signed on January 26, is considered to be most comprehensive & mutually advantageous agreement for both the sides. The India-EU trade agreement has been decades in the making. Both have finally come close to signing the agreement after talks were re-launched in 2022. Negotiations were started in 2007, but abandoned in 2013.
In this context, let us try to understand the significance & challenges of India-EU relationship & what can be the way forward to take this relationship to its desired potential.

What is the SIGNIFICANCE of India-EU relations?

1. Major Trading Partner: The EU is India’s 2nd largest trading partner (after the US), with annual bilateral trade in goods nearing $137 billion in 2024-25. The EU is also India’s number one export destination. India is the EU’s 10th largest trading partner.
2. Foreign Direct Investment (FDI): The EU is a major investor in India, accounting for 17% of total FDI inflow, contributing to significant employment opportunities. Between 2015 & 2022, the FDI from EU to India grew by 70%, with France’s investment alone increasing by >370%. 
3. Shared Values: Both India and the EU are the world’s largest democracies and are committed to a rules-based international order, multilateralism, and shared values such as democracy, rule of law, and human rights. This forms a strong foundation for their strategic cooperation. 
4. Counterbalance to a Unipolar or Bipolar World: Both India and the EU are major poles in a multipolar world order. They share an interest in ensuring that global governance is not dominated by a single power or a tense bipolar rivalry (U.S.-China). Their partnership promotes a more balanced and rules-based international system.   
5. Supply Chain Diversification: Post-pandemic and Ukraine war, both seek to de-risk and diversify supply chains away from over-concentration in China (“China +1” strategy). They are natural partners for this, with India’s manufacturing capabilities (“Make in India”) and the EU’s technology and capital.
6. Bilateral Trade and Investment Agreement (BTIA) Negotiations: Ongoing negotiations for a comprehensive FTA are expected to boost market access for Indian goods and services, facilitate investment, lower trade barriers, and further integrate India into European and global value chains. The FTA also aims to support resilient supply chains, digitalization, and sustainable trade.
7. Climate and Clean Energy Leadership: Both, India & EU, are committed to fighting climate change and promoting sustainable energy solutions. Cooperation in green hydrogen, solar energy, and energy efficiency supports India’s ambitious renewable energy targets and decarbonization efforts.
8. China Factor: Both India and the EU view China’s increased assertiveness—military, economic, and technological—as a central strategic challenge.

What are the CHALLENGES to the India-EU relationship?

1. Stalled Free Trade Agreement (FTA) Negotiations: The Bilateral Trade and Investment Agreement (BTIA) talks started in 2007, paused in 2013, and have seen slow, difficult restarts. This is the single most symbolic hurdle. The key sticking points include:
   1. Market Access: The EU wants lower tariffs on automobiles, wines, spirits, and dairy products. India seeks greater access for its professionals (mode-4 services) and easier visa regimes.
   2. Geographical Indications (GIs): The EU strongly protects GIs (like Champagne, Parmesan), which can conflict with generic names used in India (e.g., “Scotch Whisky”).
   3. Data Localization & Digital Trade: India’s data privacy and localization rules are a major concern for EU digital firms.
   4. Sustainable Development: EU insists on linking trade to strict labor and environmental standards, which India views as potential non-tariff barriers.
2. Carbon Border Adjustment Mechanism (CBAM): This new tax on carbon-intensive imports (like steel, cement, aluminum) is seen by India as discriminatory and a de facto trade barrier that could hurt its exports.
3. Technology Transfer and Digital Regulations: While India seeks greater technology transfer, concerns over data privacy, digital sovereignty, and cybersecurity regulations (like the EU’s GDPR) create hurdles for Indian businesses.
4. Visa and Mobility Issues: Indian students and professionals face strict visa, work permit, and mobility regulations in the EU, limiting people-to-people and business links.
5. Defence and Strategic Divergences: India’s dependence on Russian defence systems limits deeper collaboration with Europe on advanced military technology for e.g. Despite projects like submarine collaborations with France and C-295 Aircraft with Spain, EU-India defense ties lag behind those with the US or Russia.
6. Ukraine-Russia Conflict: This is the most acute recent divergence. The EU’s primary strategic focus is countering Russia and supporting Ukraine. India, while calling for peace, has maintained a neutral stance, increased oil imports from Russia, and avoided voting against it at the UN. This has created strain and trust deficits, with the EU concerned about India’s close ties with Russia.
7. China Factor: 
   1. Trade with China: Despite concerns, both, India & EU, retains substantial economic links with China. China is the EU’s largest trading partner, well ahead of India. India also maintains significant trade with China (China was India’s largest source of imports in 2024).
   2. Different Threat Perceptions: For India, China is a direct neighbor and military competitor, whereas for the EU, the China question is entwined with economic security and global standards, with Russia still representing a higher immediate security threat.

What have been the INITIATIVES to bolster the India-EU relationship?

1. Resumption of Free Trade Agreement (FTA) Negotiations:
   • After a 9-year hiatus, negotiations for a comprehensive Free Trade Agreement (FTA), a stand-alone Investment Protection Agreement (IPA), and a Geographical Indications (GI) Agreement were formally restarted in 2021. This is the most significant economic initiative.
   • The FTA covers goods, services, investment protection, and geographical indications. It aims to boost market access, facilitate resilient supply chains, support digital and green transitions, and align with modern regulatory standards.
2. India-EU Trade and Technology Council (TTC): Launched in 2022, this is a major geopolitical upgrade, placing India on a similar footing as the US and EU. It has three working groups:
   1. Strategic Technologies & Digital Governance: Collaboration on 5G/6G, AI, semiconductors, digital public infrastructure.
   2. Green & Clean Energy Technologies: Focus on solar, hydrogen, circular economy, battery storage.
   3. Trade & Investment Resilience: Deepening supply chain cooperation and addressing barriers.
3. High-Level Dialogue on Trade and Investment: This ministerial-level dialogue provides political guidance to the bilateral trade and investment relationship, ensuring regular discussions and addressing market access issues and trade barriers.
4. India-EU Strategic Partnership – A Roadmap to 2025: Adopted in 2020, this roadmap guides joint action and aims to further strengthen the strategic partnership across various sectors, including trade, climate change, security, and sustainable development.
5. Indo-Pacific Oceans Initiative (IPOI) and Maritime Security Strategy: India has joined the EU’s IPOI and Maritime Security Strategy, highlighting shared strategic priorities in maintaining a free, open, and inclusive Indo-Pacific. Joint naval exercises, such as those in the Gulf of Guinea and Gulf of Aden, further enhance maritime security cooperation.
6. Clean Energy and Climate Partnership (CECP): Established in 2016 and recently updated for its third phase (2025-2028), the CECP focuses on deeper cooperation in Green hydrogen, Offshore wind energy, Energy efficiency etc. India was an exclusive country partner at European Hydrogen Week in 2024, and the EU was a key partner at the International Conference on Green Hydrogen in Delhi in 2024. 
7. Research & Development Cooperation: Agreements for R&D cooperation in peaceful uses of nuclear energy and India’s associate membership in CERN (European Organisation for Nuclear Research) signify deepening scientific collaboration.
8. India-EU Connectivity Partnership (2020): A joint initiative to promote rules-based, transparent, and sustainable connectivity projects in regions like South Asia, Africa, and the Indo-Pacific, seen as an alternative to China’s Belt and Road Initiative (BRI).
9. India-Middle East-Europe Economic Corridor (IMEC): While not exclusively an India-EU initiative, IMEC is a significant project that aims to strengthen connectivity between India and Europe via the Middle East, enhancing trade routes and energy security. The IMEC has the potential to become the modern age Silk Road linking geographies not only in trade, but also in enterprise, energy & innovation. It is an answer to the Indo-Pacific’s demand for infrastructure that is transparent, sustainable & sovereign in spirit. 

What can be the WAY FORWARD?

1. Accelerating FTA Negotiations with Flexibility: Both sides need to adopt a flexible and pragmatic approach to finalize the FTA, addressing sensitive sectors gradually and enhancing regulatory alignment through mutual recognition agreements. This includes finding solutions for issues like market access, intellectual property rights, and sustainability standards.
2. Enhancing Technology Cooperation: Continued focus on establishing dedicated frameworks for technology transfer, ensuring balanced access, and strengthening collaboration in emerging technologies like AI, semiconductors, and cybersecurity. Facilitating data-sharing agreements that balance privacy protection with business innovation needs is also vital. Europe’s leadership in deep tech, digital manufacturing & semiconductors dovetails with India’s dynamism in software, digital public good (e.g. UPI) & scalable platform. Together, they can lead in clean energy innovation, biotechnology, ocean sustainability, food security & resilient healthcare systems. 
3. Addressing Climate and Energy Policy Concerns: Developing a joint roadmap for implementing green energy solutions, aligning policies on renewable energy investments, and finding solutions for issues like the Carbon Border Adjustment Mechanism (CBAM) to prevent adverse impacts on Indian exports. Increased funding and technology-sharing for green hydrogen and carbon-neutral initiatives are also important. 
4. Deepening Security and Defence Cooperation: Exploring opportunities for joint production of military equipment, enhancing maritime security in the Indo-Pacific, and strengthening cybersecurity and intelligence sharing. India’s interest in joining projects under the EU’s Permanent Structured Cooperation (PESCO) and negotiating a Security of Information Agreement (SoIA) further indicates this direction.
5. Strengthening Multilateral Engagement: Both India and the EU should continue to work together in multilateral forums like the UN, G20, and WTO to address global challenges and promote shared values, aiming to reform institutions to better reflect 21st-century realities. 
6. Human Mobility: A comprehensive mobility agreement for students, scientists & scholars will enrich talent pools, ease Indian unemployment issue & fertilise bilateral innovation. In the age of ideas, cross-border thinkers are as valuable as cross-border capital.

CONCLUSION:
India & EU needs to harness the immense potential of their partnership by collaborating on critical & emerging technologies, build resilient supply chains & bolstering strategic & security cooperation. They need to promote mutual trust, shape global governance & champion the shared values of democracy, rule of law & multilateralism.