India–EU FTA Likely to Cut Costs, Boost Trade Without Hurting Domestic Industry: GTRI

The proposed India–European Union free trade agreement (FTA), expected to be announced on January 27, is likely to reduce costs and expand bilateral trade rather than harm domestic industry, the Global Trade Research Initiative (GTRI) said on Sunday. In FY2025, India–EU goods trade crossed $136 billion. According to GTRI, tariff reductions under the FTA would mainly lower input costs, deepen value-chain integration and increase trade volumes  classic FTA benefits that support producers and consumers on both sides.

As global trade is increasingly influenced by tariffs, geopolitics and supply-chain realignment, GTRI said the India–EU economic relationship “stands out for its clarity of purpose”. The two sides are not competitors but partners “operating on different rungs of the value chain”, with India specialising in labour-intensive and downstream manufacturing, while the EU provides capital goods, advanced technology and critical 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.

The FTA gains
Indian exports to the EU including smartphones, garments, footwear, tyres, pharmaceuticals, auto parts, refined fuels and cut diamonds largely replace the EU’s imports from third countries instead of competing directly with European manufacturing, which had offshored many of these activities years ago.

On the other hand, the EU exports high-end machinery, aircraft, core electronic components, chemicals, quality medical devices and metal scrap to India. These imports feed India’s factories, recycling ecosystem and MSME clusters, improving productivity and export competitiveness. “Tariff elimination therefore compresses input costs instead of crowding out industry,” Srivastava added.

India’s imports from the EU
India’s goods imports from the EU stood at $60.7 billion in FY2025 and were concentrated in capital-, technology- and input-intensive categories. High-end machinery emerged as the largest import segment at $13 billion, including turbojets worth $810 million, industrial control valves valued at $418 million and specialised industrial machines amounting to $343 million. India does not manufacture such advanced capital equipment at scale and relies on these imports for industrial expansion and infrastructure development.

Electronics imports totalled $9.4 billion, led by mobile phone parts worth $3.7 billion and integrated circuits valued at $890.5 million, both critical to India’s smartphone assembly and electronics manufacturing ecosystem. Aircraft imports stood at $6.3 billion, while medical devices and scientific instruments were valued at $3.8 billion. India also imported specialised medicines worth $1.4 billion, products that are largely not produced domestically.

Waste and scrap imports reached $2.1 billion, including aluminium scrap worth $632 million and brass scrap valued at $534 million. GTRI noted that India depends on imported scrap due to insufficient domestic availability for its recycling industry and MSMEs.

India’s exports to the EU
India’s exports to the EU amounted to $75.9 billion in FY2025 and were driven mainly by downstream and labour-intensive sectors. Refined petroleum products were the largest export category at $15.0 billion, led by diesel exports of $9.3 billion and aviation turbine fuel worth $5.4 billion.

Electronics exports reached $11.3 billion, including $4.3 billion worth of smartphones, underscoring India’s growing role as a large-scale manufacturing and assembly hub. Textiles and apparel remained a key segment, with garment exports totalling $4.5 billion. Girls’ suits alone accounted for $822 million, supported by textile exports of $1.6 billion and made-ups valued at $1.2 billion — sectors Europe exited decades ago.

Other major export categories included machinery and computers worth $5.0 billion, including turbojets valued at $756 million. Organic chemicals exports stood at $5.1 billion, iron and steel at $4.9 billion, and pharmaceuticals at $3.0 billion. Gems and jewellery exports totalled $2.5 billion, driven mainly by cut and polished diamonds worth $1.6 billion.

Automotive exports reached $2.2 billion, led by auto parts valued at $1.6 billion, followed by tractors worth $181.8 million, motorcycles and scooters at $164.7 million, dumpers valued at $72.2 million and cars at $32 million. Other labour-intensive exports included tyres worth $890 million, footwear valued at $809 million and coffee exports of $775 million.

Alcohol trade remains limited
Alcohol trade between India and the EU continues to be marginal. India exported wines worth $1.4 million and spirits valued at $24.5 million to the EU. Imports from the EU were higher, with wines worth $7.9 million and spirits valued at $87.8 million, reflecting Europe’s dominance in premium alcohol products.