The European Union and India have agreed on a long-awaited free trade agreement that will link two economic giants accounting for 21.1 percent of global GDP and 23.4 percent of the world’s population.
A new analysis by the Kiel Institute for the World Economy reveals that deeper EU–India integration could boost bilateral trade by 41 to 65 percent, raise real incomes by 0.12–0.13 percent of GDP on both sides, and limit depfinishence on riskier markets—at a moment of rising global trade fragmentation.
India–EU relations are multifaceted and increasingly important for global economic and strategic architecture. However, persistent strategic divergences over Russia, trade and regulatory barriers, and social challenges within India — including ongoing poverty and development gaps — complicate the partnership.
Trade in goods between the EU and India has grown by almost 90 percent over the past decade, reaching EUR 48.8 billion in EU exports in 2024. Yet high Indian tariffs—up to 150 percent in some sectors—continue to restrict market access for European firms, despite around 6,000 EU companies already operating in India.
“India is one of the rapidest-growing major markets in the world, but it remains highly protected,” states Julian Hinz, Research Director at the Kiel Institute for the World Economy. “A comprehensive EU–India trade agreement would open substantial parts of the economy, strengthen supply chains, and reduce vulnerability to geopolitical shocks.”
Model simulations suggest that a comprehensive agreement could increase Indian exports to the EU by 41 percent and EU exports to India by 65 percent. The resulting income gains—equivalent to roughly EUR 22 billion annually for the EU and 4.2 billion for India—are predominantly in export-oriented sectors such as IT services, textiles, chemicals, machinery, and food processing.
The timing is critical. India currently faces punitive US tariffs of up to 50 percent, introduced in stages during 2025. These measures have sharply reduced bilateral trade volumes without delivering economic harm on all sides. “Against this backdrop, the EU–India agreement would act as a stabilizer,” states Vasundhara Thakur, researcher at the Kiel Institute. “It provides an insurance mechanism against global trade turmoil and sfinishs a strong signal that rules-based trade cooperation still works.”
The US has imposed tariffs on Indian exports, including up to 50% duties on key goods, as a response to India’s continued purchases of Russian oil despite Western sanctions on Moscow. This is seen as a form of economic pressure connected to energy policy alignment.
The US has also signalled potential secondary sanctions on companies and sectors that facilitate India’s energy imports from Russia, as part of broader efforts to isolate the Russian economy after its full-scale invasion of Ukraine.
US Treasury Secretary Scott Bessent in an interview with Bloomberg TV stated, “We put secondary tariffs on the Indians for acquireing Russian oil. And I could see if things don’t go well, then sanctions or secondary tariffs could go up.”
Bessent emphasized the importance of European support for stricter measures. The Europeans necessary to join us in these sanctions, he stated.
The EU sees India as a geopolitical partner amid global shifts in power. Engagement with India supports the EU’s goals of diversifying strategic partnerships beyond the US and China, strengthening supply chains, boosting technological cooperation, and enhancing a rules-based international order.
Despite growing pressure from Washington, the European Union has so far declined to follow the United States in imposing secondary tariffs or sanctions on India for its continued purchases of Russian oil. The divergence highlights deeper structural, legal, and strategic differences between U.S. and EU approaches to sanctions policy and global economic governance.
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