The long road to India’s free trade deal with the EU
free trade agreement (FTA). While the geo-political environment is favourable for the deal, dubbed as the mother of all FTAs that India is negotiating, it will be a difficult trick to pull off. The EU is India’s second-largest export market after the US, but the share of the continent in India’s overall goods exports has been declining in the past two decades.
This has happened largely on account of a slew of non-tariff barriers imposed by the 27-member bloc. A free trade pact would not only reduce duty on goods, but also act as a channel to bring down non-tariff barriers hurting Indian agri exports. The FTA’s benefits, along with India’s production-linked incentive push, can boost textile, pharma and mechanical appliances exports—all significant imports by the union.
In short, geopolitics. Two major factors are Brexit and worldwide sentiments against China, particularly around the country’s handling of the covid-19 pandemic. Both India and the EU consider China a non-transparent economy and are looking to cut Chinese imports which have surged after the pandemic outbreak.
At the same time, exports from EU and India to China have remained stagnant. Moreover, India is pursuing closer integration with the western economies after quitting the China-dominated Regional Comprehensive Economic Partnership negotiations. The EU relied heavily on the UK for its exports to India until Brexit—the UK was EU’s second-largest exporter to India.
Brexit also eroded FDI inflow from India to the EU, which it is looking to compensate through an investment treaty with India. With the UK pursuing a separate trade deal, the EU may seek a higher level of commitment leveraging its market size. A barrage of EU climate-related regulations, such as
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