Bruegel think tank urges EU to finalize trade deal with India

Brussels – In 2007, the EU and India started negotiations on a bilateral trade and investment agreement. However, these efforts stalled in 2014, primarily because of the failure of the respective political leaders to make difficult choices. Talks restarted in 2022 and now offer a reasonable chance of delivering a bilateral free-trade agreement “within the course of the year,” as stated by Indian Prime Minister Narendra Modi and European Commission President Ursula von der Leyen in February 2025. So writes an analysis published by the Brussels-based think tank Bruegel.

The EU and India both rank among the world’s five largest economies in terms of GDP. Yet, much separates them economically. India’s GDP per capita is much lower than that of the EU, and its level of trade and investment protection is much higher than that of the EU or even other middle-income countries. However, India has enjoyed faster growth than any other economy, even China. The EU and India are also being brought closer together by the global geopolitical situation and their common pursuit of strategic autonomy and economic security.

The two sides should learn the lessons from past failures and reach an ambitious agreement in areas that previously proved difficult, such as goods tariffs and services, and in new areas, such as climate protection, that could again derail the revived negotiation if not managed well, Bruegel argues.

India has raised several concerns about EU climate-related measures, most notably the carbon border adjustment mechanism (CBAM) – an EU policy that imposes a carbon price on imports of certain goods, particularly those with high carbon emissions, to ensure a level playing field with EU companies that already face carbon costs under the EU Emissions Trading Scheme – and the EU Regulation on Deforestation-free Products (Regulation (EU) 2023/1115). India has asked to be exempted from the CBAM, which the EU cannot do without compromising its environmental objectives and the need to comply with the non-discrimination rules of the World Trade Organization (WTO).

An EU-India trade deal by the end of 2025 will bring not only economic benefits but will also reinforce the broader economic and political links between the EU and India at a time when world affairs are under severe strain.  

According to the study, an ambitious bilateral trade and investment agreement should serve to reinforce cooperation between the EU and India in the global context to help reconstruct a rules-based global order for the new multipolar world. This is particularly important for the multilateral trade and climate regimes, where converging EU and Indian positions could have a major influence on the redesign of international institutions and rules.

And as Bruegel explains in its policy brief: “Successful EU-India trade and investment agreements require incentives for mutual growth. These agreements need not mirror the EU’s global free trade agreements, but must make India a magnet for investment. Market access from the Union must be attractive, supported by a genuine regulatory dialogue, particularly on the green and digital fronts.”

The free trade agreement (FTA) could be concluded “by the end of 2025, while an innovative investment agreement, including green value chain projects, could be developed later. The EU is better placed to offer India a transformative and balanced trade agreement. If combined with a new type of investment agreement, an FTA could increase export-oriented investment in India and boost its manufacturing sector. The EU-India trade agreement should also be viewed as an important contribution to a more strategic geopolitical partnership between the two parties. This should allow for more honest engagement on major foreign policy challenges.”

Finally, “India and the EU have the potential to be leading players in restructuring the multipolar global order in relation to the global trading system and the climate regime. The EU and India could also work with other countries that have introduced domestic carbon prices to agree on the decarbonisation of trade-intensive sectors, which could eventually provide an alternative to CBAM.”