India–EU FTA Could Boost Exports by $10–11 Billion Without New Investment

The Free Trade Agreement (FTA) between India and the European Union (EU) seems to be not only a political document but a significant economic opportunity as well. According to a recent report, India can export an additional $10 to $11 billion to the EU market without spending a single rupee on any fresh investment in its existing capacity in terms of manufacturing. However, India can achieve a 'smart shift' by diverting high tariff items to be exported to the US market to the EU market instead. This analysis has been undertaken at a critical juncture when India-EU trade in terms of merchandise has been stagnant at $136.5 billion for the last three years.

According to a report by Rubika Data Sciences, this potential rebalancing comes at a crucial time for bilateral trade, especially since the EU has suspended export benefits for some labor-intensive Indian goods that were previously covered under the Generalized Scheme of Preferences (GSP). Market experts say an India-EU FTA would be historic as it would provide a positive signal for trade outlook outside India, but immediate implementation could be challenging, as US President Trump's new tariff rhetoric poses challenges for all.

According to the report, India-EU goods trade remained stable at $136.5 billion for three consecutive years (FY 2023-FY 2025), with the EU emerging as India's largest bilateral goods trading partner in FY 2025, marginally surpassing the United States. India's share of EU imports is only 2.9 percent and exports 1.9 percent, highlighting the gap between strategic intent and actual trade outcomes.

According to the report, the EU, which is projected to grow at a mediocre and uneven rate of around 1.4 percent in 2025, with growth rates remaining slow in its largest economies: Germany, France, and Italy. While the European external trade engine remains strong, goods trade outside the EU reached $5.4 trillion in 2024.

According to the report, the EU's goods trade surplus with the US is expected to increase to $164 billion in 2024, driven by strong exports of high-value manufactured goods, including machinery, vehicles, pharmaceuticals, and chemicals. However, renewed tariff threats and policy uncertainty are likely to exacerbate this situation. This further increases the strategic importance of trade diversification for the EU. "Against this backdrop, the proposed India-EU Free Trade Agreement becomes even more important."

The report states that, beyond trade in goods, the EU remains one of India's most important investment partners. Between April 2000 and December 2024, total foreign direct investment from the EU into India amounted to $119.2 billion, representing 16.5 percent of India's total foreign direct investment.