The European Commission announced that the European Union (EU) and India were pushing to sign a free trade agreement during 2025. India and the EU want to reach an agreement regarding this deal for potential foreign direct investment in a wide range of areas, such as semiconductors, artificial intelligence (AI) and cleantech. Talks were restarted in 2021, and will be discussed further in March of this year. The EU is exploring a potential “Security and Defense Partnership” which is similar to EU’s current partnerships with Japan and South Korea. Several European governments are interested in furthering relationships in the Indo-Pacific region, as President Donald Trump continues his plan on creating a 25%tariff on any goods made in the EU.
With the divorce between the U.S. and the EU having continued to grow worse, India shows potential to create new trade agreements to discount the impacts that will ensue if they don’t make new trade agreements. India is an important trade and investment partner, with a trade value in goods and services reaching over 233.8 billion dollars. India faces rapid growth with a growing sizable and dynamic market, a growing high-skilled workforce and over a billion-person population. Indian products such as spices are in great demand in Europe, along with India’s large silk and cotton production. Europe’s accessibility to technology and increasing demand for workers makes the agreement a mutually beneficial policy. Since the EU is facing population decline, the ability for workers to migrate to one another’s countries can create a younger and more invigorated workforce.
The EU sells complex parts and machinery to India who is growing an industrial base, and in turn India can export less complicated products and soon after labor agreements between these countries. However, there are some industries that are possibly at risk if this agreement comes through. India however will suffer in the agricultural sector. This is because traditionally the EU provides subsidies to farmers in much larger quantities comparatively to the Indian government. As well, India’s automotive industry may also take a hit. If the EU begins selling cars in the Indian market, they will hurt local competitors along with foreign competitors like Japan. Carbon tax that is imposed on many countries that the EU trades with would stifle the Indian economy. In a country with a large population surplus, it is easy to achieve many more industries moving to India. However, if you implement a tax on the company, who has it figured out if India has the proper infrastructure for even those to forget to enter the Indian market altogether, since the tax wouldn’t save them much money. Therefore, India needs to make sure that they receive a deal that benefits them and their people along with the Germans.
In a few individual eyes there is an issue with India receiving more benefits than Germany, since Germany is a more secure country. The free trade deal has the potential to usher in a new silk road era for both India and Europe.
