Tricky Balance
India and the European Union (EU) appear to be in the final stages of negotiating a free trade agreement (FTA) in Brussels. The stated aim is to get the deal done by the end of this year. The accelerated attempts to finalise the long-pending FTA can be seen against the background of the recent India-US talks on trade and tariffs, where the US was assertive about reducing Indian tariffs on US goods, and India, to an extent, submitted to the idea—at least in theory.
The EU, too, wants India to reduce tariffs on key exports like dairy, wine, and automobiles. European winemakers, in particular, are pushing for a reduction in India's 150 per cent tariff on imported wines, while certain automakers want duties on fully built-up cars lowered from 100-125 per cent to around 10-20 per cent. The goal, it seems, is to make European goods more competitive in the Indian market. Juxtapose it with the situation in the US, where President Donald Trump has set April 2 as a deadline for reductions in “unfair tariffs”. Currently, India imposes an average 12 per cent tariff on US goods, while American tariffs on Indian goods stand at just 2.2 per cent. The US is also pushing India to cut Goods and Services Tax (GST) rates on certain products, arguing that they make American exports more expensive. India is proceeding cautiously. The Union Minister of Commerce and Industry was in negotiation with US officials on a potential trade deal to ease tensions while ensuring local industries were not overrun by foreign competition. Experts warn that conceding too much could harm domestic businesses, but resisting US pressure might strain ties with Washington, India’s largest export market.
This said, India’s bid to strengthen its trade ties with the EU starts to make greater sense, as it can partially avoid over-reliance on the US. However, the EU deal presents its own set of challenges. One major issue is the EU’s Carbon Border Adjustment Mechanism (CBAM), which could add up to 35 per cent in extra tariffs on Indian steel, aluminium, and cement exports, even if an FTA is signed. India is pushing for exemptions or compensatory measures to counter this impact. Other sticking points include digital trade rules and professional services. The EU wants Indian IT firms to set up local offices and comply with strict data laws, which India sees as unnecessary. New visa rules for Indian professionals and EU access to India’s banking sector are also under discussion. At the same time, investment rules and government procurement remain contentious. The EU wants access to India’s public sector contracts, but India is hesitant to open its market. On investment, the EU seeks stronger investor protections, which India rightly fears could limit its regulatory authority.
Despite these hurdles, both sides see value in a deal. The EU is India’s third-largest trading partner, and an FTA could boost trade significantly. However, India must ensure that tariff cuts don’t flood its market with cheap imports, eventually harming local industries, particularly small businesses in textiles, electronics, and agriculture. Lower tariffs could benefit consumers by making European products more affordable. However, if India refuses to budge, the EU might retaliate with trade restrictions, similar to what the US has threatened, making Indian exports less competitive. As negotiations continue, India has a tricky balancing task at hand—engaging with both the EU and the US in a way that safeguards its own economy.
