India-EU FTA: The global economic centre of gravity is moving southwards. The upside-down globe installed at the London School of Economics in 2019 captured that idea with visual economy rather than theory. Since then, the symbolism has only hardened into fact.
That reality framed the European Commission President’s description of the proposed India–European Union Free Trade Agreement as the “mother of all deals” at Davos, days before her visit to India as Chief Guest at the 77th Republic Day celebrations on 26 January 2026. The India–EU Summit in New Delhi is expected to formalise the agreement that has lingered for years in negotiation.
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Shifting alliances in a multipolar economy
Global economic leadership has never been static. Britain yielded to challengers as Germany and Japan industrialised. The United States emerged as the dominant power of the twentieth century. East Asia’s rise, followed by China’s scale and speed, unsettled the post-war Western order.
The United States now conducts a prolonged trade and technology confrontation with China, despite both accounting for nearly a quarter of global output together. The European Union, a bloc of 27 high-income economies, faces slower growth and demographic constraints. Western-led institutions, from the Bretton Woods system to the United Nations, no longer set uncontested rules.
This has widened space for regional groupings and pragmatic realignments. BRICS has expanded beyond its original members. Middle-power coalitions have multiplied. Against this backdrop, the India-EU FTA is not a routine trade pact. It is a strategic hedge by both sides against a more protectionist and fragmented global economy.
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Technology, supply chains, and strategic diversification
Technology has altered the organisation of production. Artificial intelligence, advanced logistics, and digital coordination have broken manufacturing into specialised tasks spread across multiple locations. Near-shoring and friend-shoring are no longer slogans but operating principles.
The Covid-19 shock exposed the fragility of concentrated supply chains. Western economies reassessed their dependence on China for critical inputs and adopted diversification strategies, often described as “China plus one”. This recalibration coincided with a broader reordering of economic partnerships.
Economic cooperation, once concentrated within the Global North or within the Global South, is increasingly cross-regional. EU partnerships with Japan and South Korea, the Quad, and the I2U2 grouping reflect this shift. The India-EU FTA fits squarely into this pattern.
Together, India and the EU account for over 18 percent of the world’s population and roughly a quarter of global GDP. The scale alone explains the renewed urgency.
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Complementary strengths, asymmetric needs
India, now the world’s fourth-largest economy in purchasing power terms, has sustained growth above 6 percent, with medium-term projections exceeding 7 percent. A large domestic market, rapid urbanisation, expanding digital adoption, and heavy public investment in infrastructure and logistics have altered India’s economic profile.
The European Union presents a different picture. Ageing populations and modest growth coexist with technological depth. EU economies dominate global rankings in innovation, supported by R&D spending of 2–4 percent of GDP and dense pools of specialised researchers. Germany, Sweden, Finland, and the Netherlands remain manufacturing and engineering benchmarks.
India lags the EU in formal R&D intensity and researcher density. It compensates with scale, cost competitiveness, and rapid diffusion of digital services and artificial intelligence. These asymmetries explain the economic logic of closer integration.
Priority sectors under the India-EU FTA
Negotiations have focused on sectors where complementarities are strongest. Advanced manufacturing, green technologies, circular economy systems, semiconductors, labour mobility, digitisation, and financial services feature prominently. Tariff reductions and regulatory convergence are expected to deepen trade and investment flows with strategic consequences beyond commerce.
Defence and security cooperation has moved up the agenda. Discussions now extend to maritime security, cyber defence, counter-terrorism, and defence manufacturing. India’s Production Linked Incentive framework has expanded domestic defence output. Artillery systems, ammunition, armoured vehicles, and aircraft components position India as a viable extension of European defence supply chains.
Electronics and semiconductors present a different dynamic. India has adopted a mission-driven approach to fabrication, assembly, and testing, while expanding consumer electronics manufacturing. At Davos in January 2026, the electronics and IT minister signalled the imminent launch of an indigenous high-end smartphone brand. The EU retains strengths in semiconductor design, industrial automation, and applied artificial intelligence. Collaboration can reduce vulnerabilities across the value chain.
Automobiles and electric mobility offer similar complementarities. India has depth in components, forgings, and precision parts. The EU leads in electric vehicle platforms, battery management systems, emission standards, and green mobility regulation. Cost-efficient Indian manufacturing combined with European technology can accelerate EV adoption while anchoring resilient supply chains.
Strategic meaning beyond trade volumes
Beyond these, labour-intensive Indian sectors such as textiles, garments, leather, pharmaceuticals, and generics stand to gain from improved market access. In return, India will import complex machinery and high-technology inputs that support skill upgrading and productivity gains.
The India-EU FTA is expected to expand trade and investment through progressive reduction of tariff and non-tariff barriers. That is the arithmetic.
The larger significance lies elsewhere. The agreement reflects a recalibration by two large economies responding to a fractured global order. It is less about ideology than insurance. In a world of contested rules and unreliable supply chains, diversification has become strategy.
Swati Mehta is Associate Professor, Punjab School of Economics, GNDU, Amritsar.