Strengthening Trade Ties: India’s Strategic Approach To Free Trade Agreements With The EU, UK, And EFTA – IMPRI Impact And Policy Research Institute

Policy Update
Yash Kumar

BACKGROUND

India’s strategic engagement in Free Trade Agreements (FTAs) with the European Union (EU), the United Kingdom (UK), and the European Free Trade Association (EFTA) reflects its commitment to integrating into the global economy and enhancing trade relations. These agreements aim to reduce tariffs, eliminate trade barriers, and foster investment, promoting economic growth and development.

The negotiations for the India and European Union Free Trade Agreement were initiated in 2007 were stopped in 2013 due to differences in market access and regulatory standards. The discussions were again resumed in June 2022, where both India and the European Union were aiming to finalise the FTA by the end of 2025. The European Union is India’s third-largest Trading Partner, and the FTA is aimed at strengthening this trade relationship and taking it further while also addressing key issues related to trade and investment.

In 2020, the United Kingdom exited the European Union, which was termed Brexit. Following Brexit, India and the United Kingdom initiated their discussions for a Free Trade Agreement in January 2022, and the agreement was finalised in May 2025. This became a landmark deal with the objective to double their bilateral trade from the current $60 billion to $120 billion by 2030, while also strengthening the economic cooperation among themselves and increasing investments and job creation.

In March 2024, India signed a Free Trade Agreement with the European Free Trade Association. The agreement was signed after 16 years of negotiations. The agreement includes a commitment from the EFTA countries, like Switzerland, Norway, Iceland, and Liechtenstein, to invest $100 billion and create 1 million jobs in India over the next 15 years. The agreement also aimed to reduce trade barriers and facilitate the flow of investments. This agreement was marked as India’s first comprehensive trade agreement with a major European economic bloc.

FUNCTIONING 

The India-EU FTA aims to increase trade and investment by managing key issues such as market access, regulatory standards, and sustainability. India’s objective is to seek greater access to the European market for textiles, pharmaceuticals, and agricultural products. In contrast, the EU aims for a reduction in tariffs on automobiles and alcoholic beverages. Differences in standards, particularly in agricultural products and pharmaceuticals, raise challenges. Additionally, the EU’s Carbon Border Adjustment Mechanism (CBAM) and Deforestation Regulation (EUDR) are controversial, with India expressing concerns over their potential impact on exports.

The India-UK FTA includes substantial tariff reductions on various goods, making products like chocolates and cars more affordable, and offers benefits to Non-Resident Indians (NRIs) by easing business and investment barriers. The agreement also promotes labour mobility, with provisions for increased quotas for Indian professionals in sectors like IT, healthcare, and engineering. Furthermore, the deal encourages joint ventures and technology transfer between UK and Indian companies.

The India-EFTA FTA encompasses trade in goods and services, investment promotion, intellectual property rights, and sustainable development. The agreement includes reducing import tariffs on industrial products from EFTA countries and covers various areas, including trade in goods and services, investment promotion, intellectual property, and sustainable development. Notably, the investment chapter in the agreement deals only with promotion and facilitation, without including investment protection features or investor-state dispute settlement mechanisms.

PERFORMANCE (2022–2025)

Source: Various Sources

India-EU Trade: Bilateral trade between India and the EU reached €124 billion in 2023, making the EU India’s largest trading partner. The 11th round of FTA negotiations concluded recently, with both sides agreeing to a two-stage approach to finalise the deal by 2025. India-UK Trade: The India-UK FTA is expected to boost trade flows, reduce trading costs, and strengthen economic ties. The agreement will benefit industries such as textiles, automotive, and pharmaceuticals. It also promotes labour mobility and encourages joint ventures and technology transfer between UK and Indian companies. India-EFTA Trade: The India-EFTA FTA negotiations have progressed, with discussions focusing on investment promotion and facilitation. The agreement aims to enhance economic cooperation and boost bilateral trade. However, the absence of investment protection features in the agreement may limit its impact on attracting foreign investment.

India-EU Trade Performance

Between 2022 and 2024, trade between India and the European Union (EU) has been steadily growing. In 2022, the total trade in goods was €120 billion, which increased to around €130–135 billion by 2024. India’s exports to the EU started at €65 billion in 2022 and are expected to reach €70 billion in 2024, showing a steady rise. Imports from the EU to India were €55 billion in 2022 and are projected to be between €60 and €65 billion by 2024. The trade balance, which measures the difference between exports and imports, was positive for India in 2022 and 2023, meaning India exported more than it imported from the EU. However, the trade surplus is expected to narrow to between €5 and €10 billion in 2024. Services trade between India and the EU also grew, from about €50.7 billion in 2022 to an expected €65 billion in 2024. Additionally, European investments in India, measured by foreign direct investment (FDI), increased from €88 billion in 2022 to an estimated €115 billion in 2024, reflecting growing economic cooperation. The data shows a healthy and expanding trade relationship between India and the EU.

Source: European Union

The first chart shows the trends in foreign direct investment (FDI). Over the years, inward FDI, the money coming into India from foreign investors, has been consistently higher than outward FDI, which refers to Indian investments abroad. This means that India is seen as an attractive destination for global businesses. Peaks in FDI inflows may be linked to economic reforms, liberalisation of investment rules, or international interest in India’s growing market. Outward FDI remains much lower, suggesting that Indian companies still invest relatively less abroad compared to what the country receives. This pattern shows India’s dependency on external capital for growth and development.

Source: European Union

The second chart focuses on trade in services. It clearly shows that India exports more services than it imports. This creates a positive balance or surplus in the services trade. The steady rise in services exports highlights India’s strength in information technology, business process outsourcing, education, and financial services. This surplus is crucial because it helps to offset the trade deficit in goods. It also shows that India is a global leader in the service sector, which plays a key role in supporting the country’s overall economic health.

Source: European Union

The third chart presents the trade situation in goods, and here the pattern is different. Imports of goods are consistently higher than exports, leading to a trade deficit. This means that India buys more from other countries than it sells. The gap between imports and exports is often wide, and this could be due to heavy imports of items like crude oil, gold, and electronic products, which India needs but cannot produce in large quantities. On the other hand, India’s export base is not yet substantial or diversified enough to match its import bill. This points to a need for improving domestic manufacturing and export competitiveness.

Overall, these three charts together tell an important story. India is a net importer of goods but exports more services than imports, attracting significant foreign investment. The surplus in services trade and the inflow of foreign capital help to finance the merchandise trade deficit. This reflects the structure of India’s economy, which is strong in services, still developing in manufacturing, and dependent on foreign investment. India may need to focus on building a stronger industrial base, encouraging exports, and reducing dependence on imports to ensure long-term economic stability.

India-UK Performance

Source: Various Sources

Between 2022 and 2024, trade between the UK and India showed some fluctuations but generally remained strong. The total trade value increased from £38.1 billion in 2022 to £42.0 billion in 2023 before slightly declining to £40.9 billion in 2024. During this period, UK exports to India steadily grew from £14.9 billion to £17.5 billion, reflecting a positive trend in British goods and services reaching the Indian market. Imports from India peaked in 2023 at £25.4 billion but then decreased to £23.4 billion in 2024. As a result, the UK’s trade deficit with India, which was highest at -£8.8 billion in 2023, narrowed to -£6.0 billion by 2024, indicating an improvement in the trade balance. Goods trade increased slightly and stabilised at £7.6 billion, while services trade saw a modest decline from £10.1 billion in 2022 to £9.8 billion in the following two years.

Overall, the data suggests that while the UK continued to import more from India than it exported, it made progress in reducing its trade deficit through higher exports and lower imports by 2024. Between 2022 and 2024, trade between the UK and India showed some fluctuations but generally remained strong. The total trade value increased from £38.1 billion in 2022 to £42.0 billion in 2023 before slightly declining to £40.9 billion in 2024. During this period, UK exports to India steadily grew from £14.9 billion to £17.5 billion, reflecting a positive trend in British goods and services reaching the Indian market. Imports from India peaked in 2023 at £25.4 billion but then decreased to £23.4 billion in 2024. As a result, the UK’s trade deficit with India, which was highest at -£8.8 billion in 2023, narrowed to -£6.0 billion by 2024, indicating an improvement in the trade balance. Goods trade increased slightly and stabilised at £7.6 billion, while services trade saw a modest decline from £10.1 billion in 2022 to £9.8 billion in the following two years. Overall, the data suggests that while the UK continued to import more from India than it exported, it made progress in reducing its trade deficit through higher exports and lower imports by 2024.

Source: OEC.World

In the export map, the country’s total exports amount to $14.4 billion, with refined petroleum being the most significant export at $2.19 billion, followed by broadcasting equipment at $1.45 billion, and packaged medicaments at $902 million. Other notable exports include jewellery, rice, leather footwear, insulated wires, and various clothing and textiles. These exports show that the country specialises in manufactured goods, pharmaceuticals, electronics, and garments, reflecting a strong industrial and production base.

In contrast, the import map shows a total import value of $8.01 billion, with gold being the most imported item at $1.34 billion, followed by silver at $662 million, and scrap iron at $813 million. Other key imports include hard liquor, gas turbines, recovered paper, beauty products, cars, and chemical or medical equipment. This indicates that the country imports raw materials, precious metals, luxury goods, machinery, and consumer products. The data reveals that the country exports more than it imports, suggesting a trade surplus. It relies on imports for raw and luxury materials but generates significant revenue from value-added goods like electronics, petroleum products, and pharmaceuticals.

In the export map, the country’s total exports amount to $14.4 billion, with refined petroleum being the most significant export at $2.19 billion, followed by broadcasting equipment at $1.45 billion, and packaged medicaments at $902 million. Other notable exports include jewellery, rice, leather footwear, insulated wires, and various types of clothing and textiles. These exports show that the country specialises in manufactured goods, pharmaceuticals, electronics, and garments, reflecting a strong industrial and production base.

In contrast, the import map shows a total import value of $8.01 billion, with gold being the most imported item at $1.34 billion, followed by silver at $662 million, and scrap iron at $813 million. Other key imports include hard liquor, gas turbines, recovered paper, beauty products, cars, and chemical or medical equipment. This indicates that the country imports raw materials, precious metals, luxury goods, machinery, and consumer products. The data reveals that the country exports more than it imports, suggesting a trade surplus. It relies on imports for raw and luxury materials but generates significant revenue from value-added goods like electronics, petroleum products, and pharmaceuticals.

Source: Govt UK

This line graph shows how the UK’s exports to, imports from, and total trade with India changed from 2015 to 2024. Over time, all three lines rise, especially after 2021. Total trade grows from around £16 billion to over £42 billion. Imports from India consistently remain higher than exports, which causes a trade gap. The export line grows steadily, but not as fast as imports. The most significant jump in trade happens between 2021 and 2024. This shows stronger economic ties but also a rising trade imbalance in India’s favour, as the UK buys more from India than it sells.
This bar chart highlights the UK’s trade balance with India from 2015 to 2024. Each bar represents a trade deficit, meaning the UK imports more than it exports every year. The deficit starts at -£2.2 billion in 2015 and grows to -£8.4 billion in 2024. The most profound deficits are seen after 2021, showing that the gap between imports and exports is widening. This graph clearly shows the negative trend in trade balance for the UK, emphasising that while trade is increasing, it’s not balanced. India is selling more to the UK, while the UK is not matching that in exports.
The table provides exact trade figures for each year, supporting the graphs. It shows total trade, exports, imports, and trade balance in £ billion. Total trade grows steadily, especially after 2021, from £25.2 billion in 2021 to £42.6 billion in 2024. UK exports rose from £7.1 billion in 2015 to £17.1 billion in 2024. However, imports rose faster, from £9.3 billion to £25.5 billion in the same period. The trade balance column is always negative, confirming the UK’s growing trade deficit. The table allows for easy year-to-year comparison and shows the increasing scale and imbalance of trade with India.

India-EFTA Trade Performance

Source: Various Sources

The data shows that trade between EFTA countries and India has grown steadily from 2022 to 2024. The total trade value increased from 6.1 billion USD in 2022 to 7.0 billion USD in 2024. This rise means both sides are doing more business with each other.

EFTA’s exports to India have increased slightly, but EFTA’s imports from India have also increased and are higher than yearly exports. This results in a negative trade balance for EFTA, meaning EFTA buys more from India than it sells. The trade deficit remains almost the same, around 1.5 to 1.6 billion USD, showing a consistent pattern.

Regarding what is being traded, EFTA mainly sends machinery and pharmaceuticals to India. In return, it primarily imports organic chemicals from India. This shows that the trade focuses on industrial and chemical products, reflecting both sides’ economic strengths and needs.

Overall, the analysis indicates that trade relations between EFTA and India are growing, but EFTA imports more from India than it exports. This pattern may influence the two regions’ future trade policies and business strategies.

Source: EFTA Trade

The evolution of trade from 2003 to 2024 shows a general upward trend in imports and exports, with total trade volumes rising significantly over the years. From 2003 to 2011, exports consistently exceeded imports, indicating a trade surplus. However, starting around 2018, imports began to rise more rapidly and eventually surpassed exports by 2022. This shift led to a growing trade imbalance. The total trade value peaked in 2022 and remained relatively high in 2023 and 2024, despite a slight decline.

Source: EFTA Trade

In 2024, trade with EFTA (European Free Trade Association) member states varied significantly by country. Switzerland emerged as the largest trading partner, with both imports and exports nearing 2,200 million EUR, showing a well-balanced and high-volume trade relationship. Norway followed, with moderate trade figures, particularly high imports compared to exports. Iceland had the lowest trade volume among the three, with only minimal imports and exports. This highlights Switzerland’s dominant role in trade among EFTA countries and Iceland’s limited engagement.

IMPACT

The India-EU FTA is projected to significantly enhance trade and investment between India and the EU. A 2020 analysis indicated that eliminating 90% of tariffs could increase EU exports to India by 52–56% and imports by 33–35%. However, concerns persist regarding the EU’s stringent environmental regulations, which could impose additional costs on Indian exporters. The India-UK FTA is expected to provide Indian exporters with a competitive edge in the UK market, particularly benefiting sectors like textiles and apparel. It also encourages joint ventures and technology transfer between UK and Indian companies. The agreement will add $25.5 billion to bilateral trade by 2040. The India-EFTA FTA aims to enhance economic cooperation and boost bilateral trade. The agreement includes a commitment from the EFTA countries to invest $100 billion and create 1 million jobs in India over the next 15 years. However, the absence of investment protection features in the agreement may limit its impact on attracting foreign investment.

EMERGING ISSUES 

Emerging issues in India’s ongoing Free Trade Agreements with the EU, UK, and EFTA revolve around key challenges that could impact their successful implementation. One significant hurdle is the divergence in regulatory standards, especially concerning environmental and sustainability measures. The European partners, particularly the EU, have stringent norms such as the Carbon Border Adjustment Mechanism (CBAM) and Deforestation Regulation, which India views as potential non-tariff barriers. These regulatory differences complicate negotiations and pose compliance challenges for Indian exporters, especially in sectors like agriculture, textiles, and pharmaceuticals.

Another critical issue is the absence of comprehensive investment protection mechanisms in some agreements, notably the India-EFTA FTA. Without explicit provisions for investor protection and dispute resolution, foreign investors may hesitate to commit long-term capital, limiting the potential inflow of investments that these agreements seek to promote. Market access remains a contentious point, with both India and its partners negotiating over tariff reductions and entry into sensitive sectors such as automobiles, agriculture, and healthcare. These sectors are politically and economically sensitive, requiring careful negotiation to balance liberalisation with domestic interests.

To address these challenges, all parties need to engage in continuous dialogue to harmonise standards and establish mutual recognition agreements. Incorporating comprehensive investment frameworks with robust protection clauses will foster investor confidence. Additionally, a phased approach to tariff reduction and market opening will allow domestic industries to adapt gradually, ensuring a smoother transition and sustained competitiveness.

WAY FORWARD

To realise the full potential of India’s trade engagements with the EU, UK, and EFTA. Aligning regulatory standards while safeguarding domestic interests will create a more predictable trading environment. Strengthening investment protection frameworks can attract sustained foreign capital, driving job creation and technology transfer. Emphasising phased liberalisation ensures industries have adequate time to adapt and maintain competitiveness. Ultimately, these agreements should support India’s broader economic goals of inclusive growth, enhanced global integration, and sustainable development, contributing significantly to the vision of a ‘New India’ that is resilient, globally connected, and economically dynamic.

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ABOUT THE CONTRIBUTOR:  

Yash Kumar is a research intern at IMPRI, pursuing his Bachelor of Arts (Hons) in Economics and Sociology with a minor in Political Science from Christ University, Bangalore.

Acknowledgement:

The author extends sincere gratitude to Dr. Arjun Kumar and Aasthaba Jadeja for their invaluable guidance and support. 

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.

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