India-EU trade pact to lower costs, expand trade, says GTRI

The India-EU free trade agreement, expected to be announced on January 27, is likely to lower costs and expand trade rather than threaten domestic industry, think tank Global Trade Research Initiative (GTRI) said on Sunday.

GTRI said that as global trade is increasingly shaped by tariffs, geopolitics and supply-chain realignment, the India-EU economic relationship stands out for its clarity of purpose. The two sides are not rivals but partners operating on “different rungs of the value chain”, it said.

India exports labour-intensive, downstream and processing-based goods, while the European Union supplies capital goods, advanced technology and industrial inputs.

“This structural complementarity explains why an India-EU free trade agreement is likely to lower costs and expand trade rather than threaten domestic industry,” GTRI Founder Ajay Srivastava said.

In FY2025, India-EU goods trade exceeded USD 136 billion. Srivastava said tariff cuts would primarily reduce input costs, deepen value-chain integration and increase volumes, which are classic free trade agreement gains benefiting producers and consumers on both sides.

Indian exports to the EU, including smartphones, garments, footwear, tyres, pharmaceuticals, auto parts, refined fuels and cut diamonds, largely substitute the EU’s imports from third countries rather than compete with EU manufacturing, which has long offshored these activities.

The EU exports high-end machinery, aircraft, core electronic components, chemicals, quality medical devices and metal scrap to India. These inputs feed Indian factories, the recycling industry and MSME clusters, raising productivity and export competitiveness.

“Tariff elimination therefore compresses input costs instead of crowding out industry,” Srivastava added.

India’s goods imports from the EU stood at USD 60.7 billion in FY2025 and were concentrated in capital-, technology- and input-intensive products.

High-end machinery was India’s largest import category from the EU at USD 13 billion. This included turbojets worth USD 810 million, industrial control valves worth USD 418 million and specialised industrial machines worth USD 343 million.

India does not manufacture such advanced capital equipment at scale and depends on these imports to support its industrial and infrastructure sectors, the think tank said.

Electronics imports from the EU totalled USD 9.4 billion, led by mobile phone parts worth USD 3.7 billion and integrated circuits worth USD 890.5 million. India requires these components to assemble smartphones and electronic devices, as domestic integrated circuit and component manufacturing remains limited, it said.

India also imported aircraft worth USD 6.3 billion, medical devices and scientific instruments worth USD 3.8 billion, and medicines worth USD 1.4 billion, largely specialised formulations.

“These are high-technology products that India largely does not produce and must source from advanced manufacturing economies,” the think tank said.

Waste and scrap imports from the EU amounted to USD 2.1 billion, including aluminium scrap worth USD 632 million and brass scrap worth USD 534 million. GTRI said India relies on imported scrap as domestic availability is insufficient to meet the needs of its recycling and small-scale manufacturing sectors.

GTRI said the alcohol trade between India and the EU remains marginal. India exported wines worth USD 1.4 million and spirits worth USD 24.5 million to the EU.

Imports from the EU were higher, totalling USD 7.9 million for wines and USD 87.8 million for spirits, reflecting Europe’s dominance in premium alcohol.