India-Europe Relationship – Significance & Challenges – Explained Pointwise

In a world increasingly marked by disorder & divergence due to rise in authoritarian regime on one hand & transactional viewpoint of the bilateral relations by the Trump administration, middle powers like India & Europe now seek to develop deeper integration with each other. They find the common cause in championing a multipolar order that is anchored in in international law, inclusive institutions & plural values.
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 has consistently been India’s largest or a leading trading partner, with annual bilateral trade in goods nearing $137 billion in 2024-25. The EU is also India’s number one export destination.
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. Multipolar World Order: Both entities see themselves as independent poles in a multipolar world, aiming to uphold global peace and stability. In a shifting global context marked by geopolitical uncertainty, both see each other as reliable, like-minded poles capable of upholding strategic autonomy and fostering stability in the Indo-Pacific and beyond.  
5. Free Trade Agreement (FTA) 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.
6. 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.
7. 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 relationship?

1. Stalled Free Trade Agreement (FTA) Negotiations:
   1. Regulatory Barriers & Divergences: FTA talks have dragged on for over 15 years, with persistent differences on market access, tariff structures, and regulatory standards, especially around intellectual property rights (IPR), services, and agriculture.
   2. Non-Tariff Barriers: The EU imposes strict non-tariff barriers related to labor, environment, and technical standards, which are difficult for Indian exporters to meet without costly adjustments.
   3. Disagreements on Sensitive Sectors: India resists opening up sectors such as dairy and wine to EU imports, while the EU seeks deeper tariff cuts, further complicating progress.
   4. Stricter EU intellectual property rights (IPR) norms conflict with India’s focus on affordable generic pharmaceuticals.
2. Carbon Border Adjustment Mechanism (CBAM): The EU’s unilateral climate policies, particularly CBAM, pose a major challenge for Indian exports in steel, cement, and other energy-intensive sectors.
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: India’s neutral stance on Russia’s invasion of Ukraine contrasts with the EU’s strong condemnation and support for sanctions. This has created strain and trust deficits, with the EU concerned about India’s close ties with Russia.
7. China Factor: 
   1. 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 relationship?

1. Free Trade Agreement (FTA) Negotiations: Both sides have made the conclusion of a comprehensive, balanced, and mutually beneficial FTA the centrepiece of their partnership, targeting completion by the end of 2025. 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. Trade and Technology Council (TTC): Launched in 2022, the TTC is a strategic coordination mechanism to address challenges at the nexus of trade, trusted technology, and security. It focuses on areas like digital transformation, green technologies, semiconductors, Artificial Intelligence (AI), and cybersecurity.
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: This partnership, launched in 2021, focuses on enhancing digital, energy, transport, and people-to-people connectivity. It aims to promote sustainable and resilient infrastructure development, aligning with the EU’s Global Gateway strategy. 
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.