Abhijit Bhattacharyya | Europe FTA: India Must Be Firm on Quid Pro Quo

Over a year ago, on March 10, 2024, India signed a free trade area agreement with the four-nation European Free Trade Association (EFTA), comprising Norway, Switzerland, Liechtenstein and Iceland (with a combined GDP of $2 trillion and a population of 14.2 million), under which New Delhi agreed to slash tariffs on high-end watches, chocolates, biscuits, assorted luxury goods and diamonds on the condition that this European group would invest at least $100 billion in India. Optimism ran high, and India’s commerce minister hoped it could further attract a total investment of $400-500 billion from the spin-off effects. That, regrettably, did not materialise, but it was still a pioneering FTA with a European bloc.

Now, in 2025, the 27-nation European Union has begun formal negotiations in Brussels for a Free Trade Agreement with India after a high-profile visit to New Delhi by the European Commission president and a bevy of European commissioners. The EU’s primary focus is to persuade India to reduce or abolish tariffs, about which the entire West suddenly appears to be on a synchronised cacophony. Being unable to deal with the Chinese thrust and mercurial US President Donald Trump’s tariff offensive, which may shrink its profits from exports, the European nations have identified India’s consumer market as the next best alternative.

New Delhi, however, needs to remember that the proposed future FTA with the 27-member EU will be a totally different ballgame in comparison to the earlier FTA with the much smaller EFTA in 2024. Barring the UK, the EU today includes all eight (France, Germany, Spain, Italy, Portugal, Denmark, Netherlands, Belgium) imperialist states of yesteryears who aren’t used to playing second fiddle even now because the “once a ruler always a ruler” psyche plays an enduring role in the group’s mind. Loss of kingdoms doesn’t necessarily imply loss of attitude: the memory of the “glory-that- was” lingers. The present Ukraine crisis stands as a classic example of the attempt by the EU’s former imperial powers to push back the era of lost times to make a comeback.

President Donald Trump’s tariff and trade war threats have rattled most of the export-oriented economies of some of America’s closest allies, as well as its chief rival China. Most countries have little idea of what lies ahead. Amid this turmoil, India’s economy, which is less focused on exports as it serves its own vast domestic market, is unlikely to face the kind of major shock that will face both Europe and China.

That is why European Commission president Ursula von der Leyen rushed to New Delhi in a bid to fast track the FTA with India. To reiterate, the EU is an organisation of 27 European nations that “cooperate in a wide field, including a single market with free movement of people, goods, services, capital, a common currency (euro) for some members, and a common foreign and security policy”. With a population of 450 million and a GDP of $21 trillion, the EU’s high standard of living and superior and strong economics is a contrast to India’s 1.4 billion heads of a $3.2 trillion economy.

While India is on the rise and is aiming to become the world’s third largest economy, it remains way behind the overall prosperity index of the European group. Clearly, therefore, the EU-India FTA will be an agreement between “un-equals”. Both manufacturing and technology are the strength of the EU, which is eager to tap into India’s readymade consumer market.

China has, incidentally, already done it to capture the Indian market through its industrial muscle, thereby giving a crushing blow to India’s trade balance. New Delhi doesn’t have much to offer Beijing, except mostly non-industrial, traditional goods and material.

What should India do now, with Brussels pushing for steep cuts in duties and a slashing of India’s tariffs on high-end consumer goods, which the West is known for?

New Delhi must remain firm on a quid pro quo. “You want smooth access to the vast market of 1.4 billion (with reduced tariffs) wherein 450-500 million have the means to use your goods, fine. Let it be linked with modernisation and indigenisation of India’s defence production, with special reference to three fields. Give India the latest and the best main battle tank (MBT) engines; fighting ships (frigates, destroyers, cruisers, submarines and aircraft-carrier engines) and fighter aircraft power plant”.

All should be on full transfer-of-tech (TOT) basis. All must be produced in India with the collaboration of Avadi tank factory, Tamil Nadu; Garden Reach Shipbuilders, Kolkata; Hindustan Shipyards, Visakhapatnam; Mazagaon Dock Ltd, Mumbai; Cochin Shipyards and Hindustan Aeronautics Ltd, Bengaluru.

This writer is convinced this is very much doable if India shows some political will and courage. Defence technology is after all part and parcel of international trade between nations. New Delhi must be firm that any lowering of trade deficits cannot be a one-way traffic, simply to allow the West to create a vast consumer market for its manufactured goods. There must be substantive gains for Indians too.

Look back at the history of the East India Company. How the private corporation headquartered in London badgered Delhi’s Mughal ruler Jehangir day in and day out to grab unfettered rights to make merry in the Indian market, which it later converted into a colony and gained a monopoly market for the next 150 years.

It’s time for India to deal with trade issues on an equal footing, and not be deceived by diplomatic niceties. The EU must have been emboldened seeing how Chinese dictator Xi Jinping had encircled New Delhi with a few malice-filled satellite estates to sow disruption. And then, how the pushback from the United States led Chinese diplomats to resort to a sudden charm offensive to signal what a Good Samaritan Beijing's now prepared to be -- as a “partner rather than rival”!

The Dragon has been taking advantage of lack of vigilance by Indian policymakers by dumping exorbitantly priced goods on India, like electric and fossil-fuel motor vehicles to metro rail rakes to telecommunications gear and sub-standard consumer products to derive huge profits. The inherent craze for “cheap foreign goods” among naïve Indian buyers, like Americans got addicted for more than 40 years, has put New Delhi in an extremely tight spot. That lesson must be learnt and understood. The EU- India FTA should not be allowed to keep India under perpetual debt, with an unbridgeable trade balance deficit, like the Indian fiasco before Beijing’s guile.

The writer has served as a chief commissioner of customs in Hyderabad and Delhi