India has the potential to increase exports to the European Union (EU) by $10-11 billion without expanding production capacity. By redirecting current high-tariff trade destined for the United States under the proposed India-EU Free Trade Agreement, this shift could significantly impact trade dynamics. The top 15 product categories India exports to the US, valued at around $45 billion, could see around $21 billion redirected to the EU with tariff reduction and improved market access.
The report by Rubix Data Sciences highlights that this redirection could bring about a substantial change in India-EU trade dynamics. This shift is crucial as the EU has recently halted export benefits for some Indian goods previously covered under the Generalised Scheme of Preferences. Despite the EU becoming India’s largest bilateral goods trading partner, with trade remaining stagnant at $136.5 billion for three consecutive years, there is room for growth through this trade realignment.
India currently represents a small portion of the EU’s imports and exports, indicating a gap between strategic intent and actual trade outcomes. The concentration of trade flows, with over 70% of India’s exports to the EU going to just five member states, poses risks during economic slowdowns in core European economies. The proposed India-EU Free Trade Agreement gains significance in the context of these challenges, aiming to enhance trade relations beyond goods trade.
The EU, a $21.1 trillion economic bloc in 2025, is facing moderate growth with uneven performance across its major economies. Despite a widening goods trade surplus with the US, the EU’s trade diversification efforts are crucial due to tariff threats and policy uncertainties. The EU also stands as a significant investment partner for India, with cumulative FDI from the EU amounting to $119.2 billion, constituting 16.5% of India’s total FDI equity inflows.
