The European Union and India are caught in an awkward spot between the United States and China. The two must create a new trade partnership.
In the late fifteenth century, the Portuguese explorer Vasco da Gama departed from Lisbon with 170 sailors for a voyage to India. His successful trip led to centuries of complex history of direct interaction between Europe and the subcontinent, including trade and colonization. India, however, was always more than a European colony, and surely enough, it quickly re-achieved geopolitical prominence after independence in 1947. During the Cold War, it sought to lead the non-aligned movement, positioning itself as a middle path between the Soviet and American-led blocs.
Today, India’s pivotal role is not only political but also economic. India now boasts the fourth-largest GDP, hosts roughly 18 percent of the world’s population, and has become a critical country in manufacturing, trade, and services. New Delhi, however, has transformed its non-alignment into “multi-alignment,” opening new doors for partnerships.
Brussels has been aware of India’s potential and openness, having signed the 1994 Cooperation Agreement and established a strategic partnership in 2004, with negotiations ongoing to ink a free trade agreement. These agreements, despite their name, lacked a strategic vision and recognition of the common interests of the bloc and India. The last round of trade negotiations stalled due to differences in green and standards-driven rules. Today, the priority is economic security. With the Russian invasion of Ukraine and questions about American reliability, the European capitals feel the chill of great power competition, creating a demand for new allies.
Both the EU and India are squeezed in the economic, political, and technological contest between the United States and China. As Washington reevaluates the role of allies in its grand strategy, European governments have been compelled to seek new partners and explore ways to remain geopolitically relevant. India’s evolution into a “multialignment” strategy has been praised as a way forward.
The “pivot” became evident when European Commission President Ursula von der Leyen spoke at the Raisina Dialogue, India’s premier forum for international affairs, in 2022 and called for a deeper strategic partnership. More recently, the entire college of European Commissioners traveled to India to materialize that partnership.
Progress so far has been focused on the economic front. Negotiations for an EU-India Free Trade Agreement have been conducted in parallel with the EU-India Trade and Technology Council, which is tasked with aligning visions and standards on economic security and trade in goods and services. The EU has only similarly collaborated with the United States. Were this FTA to materialize, it would be the most significant economic alliance in the world, both in terms of the population covered and the size of the two economies.
The EU is already India’s largest trading partner, accounting for €124 billion of trade in goods in 2023, or 12.2 percent of total Indian trade. Trade in services between the EU and India reached nearly €60 billion in 2023. A third of that was digital services. By 2050, India’s GDP could amount to $30 trillion (compared to $4 trillion today), while Europe’s share of global GDP could fall below 10 percent. If Europe wishes to remain relevant, it should strive to establish stronger relationships with the drivers of growth.
However, this is about more than just economics. India is a key to the EU’s push for a presence in the Indo-Pacific, while India needs European investment to create more jobs for its struggling labor market. Furthermore, the EU is very concerned with China’s abusive industrial capacity and its aggressive behavior in the Taiwan Strait and the South China Sea. To India, China isn’t just a distant challenge; it’s a threatening neighbor with expansionist ambitions and growing military might.
It is not in Europe’s interests for China to be the hegemon in Asia, as it would set the global rules of commerce. Similarly, it is certainly not in India’s interest to be a neighbor to a hostile hegemon, and it must therefore deny China’s economic hegemony in the Indo-Pacific.
The FTA under negotiation is a test case for future collaboration, and it’s very much needed. While India is actively seeking to industrialize and modernize the Indian economy, it is still very much a rural economy. With an FTA, Europe hopes to export its cars and alcoholic products duty-free, while India seeks increased market access for textiles and medical goods. Importantly, both Europe and India seek to de-risk their economies from dependence on China, which is why an agreement might succeed this time around.
Furthermore, India’s youth unemployment rate is 16 percent, a sharp drop from 26 percent in 2018. However, the under-25 population accounts for nearly half of the population. This stressed labor base could come under further strain as the country transitions to a more advanced, technology-focused, and industrialized economic model. There is a clear opportunity on this front, as the EU has set aside €300 billion for its Global Gateway program to fund infrastructure projects in the developing world. As India seeks to expand its export economy and advance industrialization, the EU should consider mobilizing these investments in the subcontinent.
A test case for strategic coordination in economic security is the semiconductor industry. India’s government has launched the India Semiconductor Mission, a project involving more than $15 billion in incentives and investments for semiconductor production. With Indian states competing with each other to offer additional incentives, the country aims to attract investments from foreign chipmakers. As Brussels seeks to double its share of chip production by 2030, policymakers should consider expanding the European Chips Act to mobilize investments in India under strict supply contracts. By doing so, Europe would ensure alignment and coordination with the Indian government on chip-specific export controls and investment screening.
Another opportunity lies with electric vehicles. Europe’s automotive industry is showing signs of strain; its future is threatened by Chinese overproduction of cheap, quality electric cars. India’s automotive industry, however, is on the up.
In 2024, it produced 125,500 EVs, representing a 22.5 percent annual growth rate, which is significant compared to Europe’s 2.4 million, which stalled compared to 2023. Companies like Tata Motors are able to produce in large quantities and have even acquired legendary British carmakers like Jaguar Land Rover. Under the proposed FTA, rules governing mergers and acquisitions (M&A) could be eased to facilitate new partnerships in this sector.
The obstacles to a partnership are not minor. As President Donald Trump recently highlighted, India’s energy purchases from Russia are considerable. Brussels will seek to ensure India winds down its support for Russia’s defense industrial base, posing a direct conflict with India’s relations with Moscow. This clash prompted Indian external affairs minister S Jaishankar to comment that “Europe has to grow out of the mindset that its problems are the world’s problems.”
India’s complex religious dynamics also pose severe drawbacks for European lawmakers, who believe India is not upholding religious tolerance. Jaishankar also criticized EU diplomats on this front, calling them “preachers.” Lastly, India’s lack of and cancellation of 58 investment agreements in recent years have not been met with new proposals, posing a challenge to international investors.
The challenges in the relationship are not small, but agreement on key fronts does not imply a rejection of others. Failure to realize this truth has led Europe to miss many opportunities for external engagement. The EU and India risk being squeezed by the United States and China in an ever-growing, global techno-economic conflict. Brussels and New Delhi can and should be each other’s best partners.
About the Author: Eduardo Castellet Nogués
Eduardo Castellet Nogués is an Associate Editor and Fellow at Generation Europe-India (GenEI) and the Author of the Critical Supply newsletter. Previously, he was a program Officer for Tech Policy at CEPA, where he researched EU-US-China tech and trade relations. He graduated cum laude from American University’s School of International Service.
Image: Frederic Legrand – COMEO / Shutterstock.
