For more than a decade, India has been negotiating free trade agreements (FTAs) with the United States and the European Union. As 2025 draws to a close, neither has reached fruition. Talks with both partners have advanced, stalled, revived, and stalled again. This pattern might once have been explained away as diplomatic inertia. In a year marked by tariff wars, geopolitical fragmentation, and aggressive industrial policy, the absence of deep trade pacts with the world’s two largest developed markets has become harder to justify.
The problem is not a lack of engagement. It is that India’s political economy has reached a point where the demands embedded in modern free trade agreements sit uneasily with domestic priorities. What is at stake is no longer tariff reduction alone, but the extent to which India is willing—and institutionally prepared—to align its regulatory, industrial, and fiscal framework with those of advanced economies.
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FTAs as regulatory export instruments
The United States and the European Union no longer treat FTAs primarily as tools to lower tariffs. They use them to export regulatory standards. Labour rights, environmental safeguards, digital trade rules, public procurement access, and intellectual property protections now form the core of such agreements.
This shift collides directly with India’s recent turn towards activist industrial policy. Production Linked Incentive schemes, localisation requirements, and preferential procurement norms are central to New Delhi’s manufacturing strategy. For Washington and Brussels, these instruments look like trade-distorting subsidies and violations of national treatment principles. For India, they are essential tools to build scale, attract investment, and correct structural disadvantages. The conflict is not tactical. It goes to the heart of India’s growth model.
Why the EU talks keep breaking down
The EU–India Broad-based Trade and Investment Agreement (BTIA) negotiations began in 2007, were suspended in 2013, and revived in 2022. Brussels is pressing for binding commitments on sustainability, labour standards aligned with International Labour Organisation conventions, carbon border measures, and expanded access to India’s services and public procurement markets.
These demands reflect political realities within Europe, where trade agreements face intense scrutiny from voters, courts, and national parliaments. For India, however, they raise difficult questions of sequencing. Compliance costs for small and medium firms remain high. Regulatory enforcement varies widely across states. Accepting enforceable commitments before domestic systems mature risks importing legal liabilities without commensurate economic gains. What appears in Brussels as rule-based trade often looks in New Delhi like premature lock-in.
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The US: market access without certainty
The challenge with the United States is different. Washington has shown little appetite for comprehensive FTAs in recent years. Under Donald Trump, trade policy became overtly transactional, with tariffs deployed as instruments of leverage. Even before that, bipartisan scepticism towards trade agreements had grown, driven by manufacturing job losses and strategic rivalry with China.
For India, this creates an asymmetric negotiation. The US seeks access in agriculture, dairy, medical devices, and digital services, while offering no predictable pathway on tariff reduction, dispute settlement stability, or skilled-worker mobility. India’s core offensive interest—movement of professionals and recognition of qualifications—remains politically untouchable in Washington. The imbalance between regulatory concessions sought and reciprocal gains offered has repeatedly narrowed the negotiating space.
Agriculture, IP, and digital trade as red lines
Agriculture remains the most politically sensitive fault line in both negotiations. The US and EU seek greater access for farm products. India remains constrained by food security concerns, smallholder livelihoods, and minimum support price regimes. The farm protests of recent years have hardened official caution. Trade negotiators may see scope for calibrated opening, but the domestic political margin for error is thin.
Intellectual property rights form another entrenched divide. Both partners push for TRIPS-plus provisions that extend patent terms and data exclusivity. India’s generic pharmaceutical industry—and its role in supplying affordable medicines to developing countries—has made successive governments resistant. The dispute is not merely commercial; it speaks to India’s self-image as a defender of development-friendly trade rules.
Digital trade has emerged as a newer source of friction. India’s data protection framework, localisation requirements, and emphasis on digital public infrastructure sit uneasily with US demands for unrestricted data flows and limits on state intervention. The EU is more sympathetic to regulation but brings its own stringent data protection standards, creating a different but equally demanding negotiation terrain.
Selective integration, strategic hedging, and their limits
India’s trade strategy has shifted away from the assumption that deeper integration with Western markets is always beneficial. The decision to exit the Regional Comprehensive Economic Partnership in 2019 reflected concerns about import surges and industrial competitiveness. Since then, New Delhi has pursued narrower, faster agreements with partners such as Australia, the UAE, the UK, and New Zealand—where negotiating scope was limited and political risks manageable.
This selectivity also reflects strategic hedging. In a fragmented global order, India has been reluctant to bind itself tightly to Western trade and standards regimes while preserving flexibility in its relationships with Russia, the Global South, and emerging plurilateral groupings. Trade policy has become an extension of strategic autonomy, not merely an economic instrument.
A narrower path forward
Yet the costs of staying outside are rising. Without FTAs with the US and EU, Indian exporters face relative disadvantages against competitors with preferential access. As carbon border measures and regulatory standards harden, exclusion may become more expensive than engagement. India’s ambition to position itself as a credible manufacturing alternative to China will ultimately require deeper integration with advanced-economy markets and rules.
One way forward lies in modular agreements—sector-specific arrangements on critical minerals, clean energy, pharmaceuticals, or digital public infrastructure—that build trust incrementally without forcing an all-or-nothing bargain. Another lies at home. Many of the obstacles in FTA talks—labour regulation, agricultural markets, higher education, and services reform—are already on India’s domestic agenda. Progress on these fronts would expand negotiating space abroad without appearing externally driven.
India’s prolonged FTA impasse reflects unresolved choices about its growth strategy, industrial policy, and regulatory capacity. Until those choices are addressed directly, agreements with the West will remain close enough to matter, but too distant to conclude.