India's Trade Winds: One Win at a Time

"Somewhere Europe has to grow out of the mindset that Europe's problems are the world's problems, but the world's problems are not Europe's problems”

Dr S. Jaishankar (Indian External Affairs Minister)

The world today has been confronted with the strange reality of trade protectionism and aggressive tariff policies, which stem from the thought of intrinsic economic development amongst multiple countries, starting with the US. What was earlier seen as protectionism and reignition of manufacturing-based industries has taken the shape of trade wars.

Illustration by The Geostrata

Until the targets were the usual suspects like Russia and China, seen as counterweights to the US in the global order, it has changed. President Trump's policies might just be the face of it, but it was, in general, a post-COVID syndrome gripping nations across the board when it came to finding alternate trade partners and diversifying supply chains free of China.

However, in the face of multiple variables from the Ukraine conflict to turmoil in the Middle East, India too got bracketed on the same page as China. Reasons from its growing knack to deregulate, position itself as a key partner and emphasis on growth of capital, both human and financial, were seen as pointers to why recent policies targeted Indian interests.

Added to this was its steadiness in the face of conflict during Operation Sindoor, its non-budging stance over national interests like partnership with Russia, which drove home the western rationale to tariff it till eternity. 

However, then came the shock that world watchers never thought of. The American demands to the North Atlantic Treaty Organization (NATO), starting from more defence commitments to the “I am, so you are” approach, was a landmine the European Union (EU) was not ready for.

In fact, the need of the European Union to hasten the mother of all deals was both a need and a mild strategic reset for the EU. And India was up for the taking, because of its market, its ethical high-headedness and a guarantee of unparalleled mutual good to both Indian and European stakeholders and markets. 

The deal, which was formally announced on behalf of the EU at the  World Economic Forum, Davos 2026, has seen the dawn of a new era for India. With a total of 13 Free Trade Agreements and more with Chile in the pipeline, India has been on a complete roll.

9 of these have come in the last 6 years alone, which should have been considered by European decision-makers. And one aspect common to all of them is the level of market interdependence and human capital exchange, along with thetechnology upgrades that have come with them. And Europe seems to have taken a step in the right direction.

Former president of France, Charles De Gaulle, believed that a supranational European authority would only one day come under an American command, and that always called for Europe to be an independent third force emancipating itself from American dependence, and that seems to be taking place with India as the most reliable partner. 

As the European Union prepares to implement India’s historic trade deal, New Delhi’s strategic deployment of FTAs reveals a careful balancing act between economic opportunity and geopolitical necessity. The shift is to be recognised in response to tariff threats by a hegemon, Chinese trade assertiveness, and undue pressure by Western powers to subdue imports of Urals crude.

New Delhi was quick to assess the situation and accordingly respond. In the post-pandemic era, it signed Free Trade Agreements (FTAs) with several countries like Australia, New Zealand, the United Kingdom and the United Arab Emirates. Recently, it agreed in principle to one of the most historic trade deals with the European Union. New Delhi has also been swift in weighing its strategic options by tactically utilising alliances like IMEC and exiting RCEP, owing to its national interest.

INDIA-EU FTA

Following India’s 76th Republic Day, New Delhi’s relationship with Brussels entered a new phase through what was termed as “Mother of all deals” after decades of trade negotiation. The deal eliminated tariffs on 99.5% of Indian exports and 97% on EU goods.

The EU is India’s largest trading partner, with trade worth $120 Billion in FY25. This reduced to 0% for the marine sectors, pharmaceuticals, processed foods, plastic and apparel. The automobile sector might see the biggest difference, particularly in luxury vehicles.

The deal also included a defence partnership and a defence and security framework, inclusive of maritime security, defence industry, technology, cyber and hybrid threats, space and counter-terrorism. Both sides also agreed to the Security of Information Agreement for the facilitation of confidential information. Brussels also agreed on the launch of the first EU legal gateway office in India as a one-stop hub to provide information and support the movement of workers, starting with the ICT sector.

The FTA is expected to cut up to $4 Billion in tariffs.  This deal is going to benefit the textile sector (in particular) once implemented, amidst the cancellation of $2 Billion worth of orders after it was hit hard by the US tariffs. Concerns over the EU’s insistence on greater market access for agriculture and CBAM de facto tariffs remain contentious, but the deal marks a new beginning in the India-EU chapter.

OTHER FTAs

The United Kingdom is undoubtedly New Delhi’s major strategic partner. Both sides' agreement for an FTA has come at a time when New Delhi is trying to navigate its trade diplomacy amidst strained relations with the US post-Trump administration’s tariffs. The deal has led to the elimination of tariffs on footwear, textiles, electrical machinery, minerals and base metals.

New Delhi has agreed to cut tariffs on cosmetics, aerospace products, lamb, medical devices, salmon, electrical machinery, soft drinks and chocolates. This deal is expected to advance the bilateral trade of both nations, which stood at $53 Billion in FY25. This was India's first full trade deal with any country and is a significant step towards the China+1 policy of different nations and making India a more lucrative trade destination. Similarly, India’s agreement of principle for FTA with UAE, Australia and New Zealand has positioned India as a preferred trade and investment destination.

India’s signing of an FTA with New Zealand will bring about USD 20 billion over 15 years. FTAs are also expected to increase bilateral trade to $200 Billion and $70 Billion with the UAE and Australia, respectively.

IMPACT ASSESSMENT

While FTAs enhance India’s market access and strategic leverage, their distributional effect remains uneven. Industries like pharma and labour-intensive sectors are going to be the biggest beneficiaries, while small farmers and the automobile industry may face stiff competition. The EU’s stringent standards, ranging from carbon compliance under the Carbon Border Adjustment Mechanism (CBAM) to IP protections, could function as non-tariff barriers, raising compliance costs for MSMEs and potentially constraining India’s trade diversification in pharmaceuticals and green manufacturing.

While FTAs are a welcome move, New Delhi can eventually benefit by considering joining blocs like the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). New Delhi’s advent into CPTPP and RCEP can open its channels with ASEAN partners, leveraging itself efficiently against the China+1 policy within the grouping, projecting itself as Dakshinmitra on the same lines as Vishwamitra.

FTAs alone will not secure India’s economic or strategic interests. Tariffs cannot solely lead India's trade engine. The government must drive domestic reforms, quality regulations, and proactive use of preferential access to integrate MSMEs and services into global value chains, which must go hand in hand. In an uncertain world, trade diplomacy is India’s instrument of influence, but only if paired with readiness at home.

The words of External Affairs Minister Dr S. Jaishankar that "Somewhere Europe has to grow out of the mindset that Europe's problems are the world's problems, but the world's problems are not Europe's problems" happen to have their worth, weight in gold.

The EU seems to have pulled off a rejig, through its “mother of all deals”. Further, this only brought out the closeted American administration to hasten the Indo - US trade talks, reduction of reciprocal tariffs, “father of all deals,” while India gets to keep its legacy relations with Russia as it is. This further builds India’s case for being a smooth operator of big power relations.

As Europe - India dawned on a new era of partnership, India today is not just a fence sitter, but is a growing contributor to the world’s multi-polar order. Written by its sovereignty and driven by its people, India today brings command, control and consistency.

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BY SWAYAM RANJAN AND KAUSHAL SINGH

CENTRE FOR POLITICS AND LAW

TEAM GEOSTRATA

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