Leapfrogging in EU-India relations: From Free Trade to Strategic Defence and Tech

10/02/2026

Author

Senior Fellow - Asia, India

The final week of January 2026 constituted a watershed moment for EU-India relations. The conclusion of ongoing negotiations of an EU-India Free Trade Agreement (FTA), thanks to a critical push from 2022 onwards, closed decades of intermittent negotiations. The conclusion of the FTA is an outstanding achievement coming out of the EU-India 16th Summit but not the only one. The long-postponed summit also delivered a much-awaited agreement on a Security and Defence Partnership, as well as concluding the India-EU Comprehensive Framework of Cooperation on Mobility. Additional agreements on EU-India Innovation Hubs and the launching of an EU-India Startup Partnership have also been achieved. The perceived real challenge for both sides now is for the overall EU-India partnership to deliver at scale and at speed, as noted by Hervé Delphin, the EU’s Ambassador to India. One could add that keeping the strategic depth and breadth of the partnership growing is currently a must.

Upon concluding negotiations, Antonio Costa, President of the European Council and holder of an Overseas Citizen of India (OCI) card, referred to trade as a "crucial geopolitical stabiliser." This goes beyond political symbolism, it also alludes to the EU and India’s desire to increase their industrial capabilities and increase their strategic alignment, including along economic security lines. Let us not forget that India sees its foreign policy as a means towards achieving economic development in its goal to become a high-income economy by 2047. Therefore, it is not surprising that its economic diplomacy is increasingly oriented toward the West: New Delhi views its economic prosperity and technological modernisation as tied to Western markets and capital, as noted by Raja Mohan, an Indian foreign policy analyst.

With the unpredictability of the India-US relationship and floundering trust issues, India has increased its desire to hedge. This is no different to the EU. The EU has realized its need to embrace pragmatism and diversify its strategic partnerships with rising powers - as with Vietnam for instance. There is obviously also a China-dependency reduction in the deal’s rationale. The notion of uniting within a broader "intermediate power architecture" that provides mutual gains against great power rivalry has certainly provided momentum for the EU-India strategic partnership.

Putting the EU-India FTA in Perspective

So, what fostered such a productive outcome after years of delays? The visit of Ursula von der Leyen, to India together with the whole College of Commissioners in February 2025 was a consequential trigger. It resonated amidst New Delhi’s establishment and bolstered the EU’s message that it was willing to "walk the talk" when it came to becoming a truly strategic partner of India. This further suited the EU well at a time when securitization and transactionalism are leading over normative and liberal-minded considerations. Brussels has learned the hard way when it comes to the need to diversify and consolidate new partnerships amidst an increasingly coercive economic and trade landscape. The uncertainty in the relationship with the current US administration, a former long-life ally, has certainly helped the EU leapfrog out of its comfort zone.

New Delhi has proven quite adept at it amidst its history of non-alignment and current pluri-alignment though the harsh turnaround of the Trump administration with 50 percent tariff imposition in August 2025 did come as an unexpected blow. Soon after the public announcement of the India-EU FTA, the US and India announced their own framework for an Interim Agreement, branded as a "bandage political deal." The agreement will allegedly reduce US tariffs on Indian exports from 50 to 18 percent. It further contains a commitment from India to purchase USD 500 billion (EUR 425 billion) in US goods and services over the next five years, as well as an explicit promise to stop purchasing Russian oil - notably by Indian Oil, Bharat Petroleum and Reliance Industries - and shift to Venezuelan oil imports instead. The intricacies of that particular agreement are worth analysing elsewhere. It does illustrate the extent to which India is integrating trade agreements as part of its de-risking toolbox.

New Delhi has shown a hyperactive engagement in trade negotiations these past couple of years. Just in 2025, India concluded new trade agreements with the United Kingdom, Oman and New Zealand, while in negotiations to sign 12 other new agreements, including the now concluded India-EU FTA. Australia, Canada, Chile, Peru, Sri Lanka, Mercosur and the Eurasian Economic Union (EAEU) are next in line in New Delhi’s trade playbook. The EU, for its part, is known for its dexterity and leverage in trade negotiations accounting for 15.8 percent of global trade in 2024, reaffirming its leadership as the world's top trader of services and the world's second goods trader after China in 2024.

The EU-India trade deal has been popularly termed as "the mother of all deals," which even passport control officers in India currently acknowledge upon EU citizens’ arrival! Its scope is indeed magnificent, encompassing close to 2 billion people. When zooming in, however, while the EU was India’s largest trade partner in goods in 2024, India is only the EU’s 9th trade partner, way behind the US, China or the United Kingdom. In addition, the EU has a 2 percent export quota on goods to India versus 10 percent to China, as pointed out by Nikolas Köhler-Suzuki, an EU-India trade expert. The Netherlands, Belgium, Italy, France and Spain rank among the top ten leading EU export countries to India in 2023-24 while Germany and Ireland headed the top 10 importers list among EU countries. Yet, Switzerland is the only European country among the suppliers of India’s top goods imports with China, Russia and the UAE topping the list, in that particular order, during the first quarter of 2024 and 2025.

What Do the Two Sides Stand to Gain?

A broader theme of the trade deal, as noted by officials on both sides, has been opting for the "low-hanging fruits," that is, leaving sensitive issues such as public procurement, data governance and cross-border data flows to the side. Sensitive agricultural sectors - wheat and poultry for India, beef and sugar for the EU, and rice for both - as well as dairy have also been left out of the agreement. Complementarity of the economies has indeed been another great facilitator towards finalizing an FTA: India produces labor-intensive products while the EU produces high tech and capital intensive ones; they are at different steps of the value chain. In fact, this is the case for most developed economies with whom India has finalized an FTA recently.

India produces labor-intensive products while the EU produces high tech and capital intensive ones; they are at different steps of the value chain.

For the EU this deal is expected to reap some substantial trade benefits, namely to double EU goods exports to India by eliminating or reducing tariffs in value of 96.6 percent by 2032. Part of these benefits are linked to Europe’s all-important automobile and agri-food industries. Prior to this deal, the reduction of automobile sector tariffs had only been conceded partly to the British, not to South Korea or Japan, as noted by Ajay Srivastava, an Indian trade expert. Market access to India of European wine, spirits and olive oil constitutes a substantial gain for European farmers.

For India, the FTA means preferential access to EU markets across 97 percent of tariff lines. The core focus is on immediate duty elimination for key labour-intensive sectors crucial to India’s economy such as textiles, leather and footwear, tea, coffee, spices, sports goods, toys, gems and jewellery, as well as certain marine products. India currently has 8-20 percent import tariffs on textiles, garments, shoes and handicrafts from the EU, in contrast to Bangladesh and Vietnam, which have enjoyed no tariff for a while; this will finally change to India’s advantage. Following the Chinese example, New Delhi is keen to become a manufacturing hub by raising the contribution of the manufacturing sector to 25 percent of GDP - currently at an average 16 percent. India’s services sector has long powered the economy, contributing to 50 percent of GDP. It is worth reminding ourselves that both India’s and the EU’s respective trade policies are embedded in their broader industrial, economic security, digital and tech policies.

The reality of the EU-India FTA, however, is one where, at best, it will take until the end of the year for the legal scrubbing to be finalized, though the usual time length is one to two years. Full implementation should take an approximate 10 years, according to trade experts on both sides. On the EU side, the legal text will still need to be adopted by the European Council and ratified by the European Parliament. Hopefully, it will meet a different fate to the recently postponed EU-Mercosur deal, which was submitted to the Court of Justice of the EU after the European Parliament’s request to confirm the agreement complied with EU treaties. The EU-Mercosur deal has also come with substantial domestic resistance by European farmers which is not envisaged in the case of the EU-India FTA. India will too need to ratify the agreement via its own Parliament House. The idea is to make the legal text publicly available in an immediate future to deter the existing uncertainty about the legal details from becoming a potential "spoiler" force.

Stumbling Blocks That Were Overcome - For Now at Least

Key wins for the EU have been the achievement of a substantial quota in tariff reduction in the automobile sector, as well as the inclusion of Carbon Border Adjustment Mechanism (CBAM) requirements despite New Delhi’s reticence over its steel, aluminium and cement exports; yet the EU has promised India EUR 500 million to help it decarbonise. While India has finally conceded to its inclusion despite strong domestic resistance, the government’s public narrative is being built around a "missed opportunity" and of how more could have been achieved as part of the FTA between the EU and India should CBAM not have been included. Thus, CBAM is being framed domestically as easing the way for New Delhi to trade more intensely with other partners instead and potentially leading to the EU’s isolation vis-à-vis third parties. India is obliterating the fact that CBAM has become part and parcel of all the EU’s trade deals, albeit in different alliterations. The EU Regulation on Deforestation-free products (EUDR) constitutes an additional hassle with which other emerging economies have had to further grapple with in their trade negotiations - such as Indonesia.

There were some giveaways from the EU too, however, such as an Investment Protection Agreement (IPA) since an Agreement on Geographical Indications (GIs) had been part of the original package deal. While there is allegedly a specific chapter on Intellectual Property rights in the EU-India FTA, it is unclear how far this goes in terms of Brussels’ requirements and how much New Delhi will be willing to finally concede in this regard. The fine print of this item and its implications will only be determined once the legal text is out for public scrutiny.

Steps Forward Against Today’s Complex Geo-Political Conjuncture

On the positive side of things, there are two welcome chapters on Digital Trade and on Small and Medium Enterprises (SMEs) that aim to focus on enabling higher "ease of doing business" standards that should attract more Foreign Direct Investment (FDI) and encourage B2B relations. The EU remains one of India’s top FDI providers, a welcome counterbalance to India’s decaying FDI inflows since 2022. But, attracting such investments is also tied with other existing non-tariff barriers in India’s regulatory set-up that would need to be eased, such as quality control orders or existing tax regimes, which differ between Indian States. Allegations of the difficulty for Indian businesses to comply with the EU’s own registration charges and complicated regulatory landscape are also part of the picture. In the meantime, a separate "Data Adequacy" track has been created to manage discerning approaches to data protection and cross-border data flows by both sides.

In addition, aside from the Security and Defence Partnership Agreement, talks towards finalizing a Security of Information Agreement (SoIA) have been launched. This represents a key pre-condition toward a deeper critical technology and defence cooperation. Both the EU and India understand that technological strength is currently tightly bound with geopolitical influence. The participation of Indian defence manufacturers in European supply chains, including under the EU’s ReArm initiative, is seen as a major opportunity for the Indian military industrial complex. There are plans to establish an India-EU Defence Industry Forum, conceived as a platform for companies from both sides to explore joint development, innovation and supply chain resilience, where governments would act as facilitators. This is a much welcome step forward toward emulating the US-India INDUS-X model.

A Gentle Reminder: Technology and Defence Remain at the Crux

The current mood in India signals to the fact that the depth and breadth of the partnership cannot be built solely on trade advancements. Additional progress in the tech and defence domains remain key to making the partnership work. There is increasing talk around India’s accession to Horizon Europe, currently under exploratory phase, which would not only allow for increased collaboration in R&D - including in skilled talent mobility - but also joint access to manufacturing and innovation platforms.

New Delhi and Brussels need to improve their innovation and competitiveness rates.

Both New Delhi and Brussels need to improve their innovation and competitiveness rates: India ranked 38th in the 2025 Global Innovation Index, way behind other Asian economies. The Draghi Report from 2024 emphasized the need to increase the competitiveness and scalability of the EU industry: the European Competitiveness Fund, as well as a Scaleup Europe Fund to fund and promote flourishing investments in strategic tech areas across Europe are first key steps. India has long integrated corporate start-ups and special non-profit companies into its digital and tech development programs, supported by large-scale public funding. This approach is not so different from what the EU is aiming to do. Why not create additional synergies?

For this purpose, it is imperative for the EU and India to go back to a nearly defunct Trade and Technology Council (TTC) and revamp their relationship along digital and technology-related lines, including in critical and green technologies. The planned advancements in the defence arena must be matched by tangible outcomes in critical technologies - such as semiconductors-, as well as in solid ecosystem-building where investors, industry, researchers and policymakers from both sides can interact regularly.

It is imperative for the EU and India to go back to a nearly defunct Trade and Technology Council (TTC) and revamp their relationship along digital and technology-related lines.

The US-India example is a case in point where India-US Defense Acceleration Ecosystem (INDUS-X) meetings were still being held at the lowest of points in the recent US-India trade spat. INDUS-X has then further led to the creation of INDUS Innovation, focussed on advancing US-India industry and academic partnerships through fostering investments in space, energy, and other emerging technologies.

These sectors are exactly those in which the EU-India partnership also aims to harness the untapped potential. In parallel to creating such ecosystems, the EU and India will have to establish fluid and trustworthy communication channels to discuss sensitive issues around tech transfer and export controls: the EU is as concerned of its technology ending up in Russian hands as India is of this happening vis-à-vis China, through middle third parties, such as Pakistan.

The EU has long awakened from its decades-long dream of a "normative Europe" to secure its own interests more assertively together with its reliable partners.

Finally, it is high time for the EU and India to take the initiative and lead new minilateral partnerships on key domains such as critical raw materials or supply chain resilience pertaining commodities, energy and critical parts. The bulk of those existing groupings to which both the EU and/or India belong to are de facto US-led: the India-Middle East European Economic Corridor (IMEC), the Quadrilateral Security Dialogue (QUAD) or Pax Silica - India was recently invited to join while the EU is a non-signatory participant - are cases in point. The EU has long awakened from its decades-long dream of a "normative Europe" to secure its own interests more assertively together with its reliable partners. Thus, it is now time for the EU-India partnership to leapfrog into unexplored strategic spheres.

Copyright Sajjad HUSSAIN / AFP
Narendra Modi, Ursula von der Leyen and Antonio Costa in New Delhi, January 27, 2026.