India-EU deal: From promise to reality

The announcement of a free trade agreement (FTA) between India and the European Union (EU) is a major turning point — not so much for its immediate gains, but for what it signals about India’s economic strategy.

- RAJESWARI SENGUPTA & ALICIA GARCIA HERRERO

After several years of high tariffs and inward-looking policies, the deal reflects a clear recognition by the Indian government that exports must play a bigger role in driving growth. However, an FTA is only a framework. It creates opportunities, but it is not a cure-all. To fully benefit from this deal, India will still need significant domestic reforms.

The deal reflects the government's confidence that Indian firms are capable of competing more strongly in global markets. Where does this confidence come from? In part, from the sheer room India has to expand its global presence. Despite being the world’s fourth-largest economy, India accounts for less than 2 percent of global goods exports. Even a 2 percent age point rise in market share would effectively double exports.

Confidence also stems from global shifts. Supply chains are diversifying away from China, and European firms are seeking alternative production bases. With nearly 65 percent of its population under 35 and significant untapped manufacturing potential, India is well placed to benefit.

Finally, the government's confidence also comes from the opportunity that FTAs create. The EU pact offers Indian exporters preferential access to 450 million consumers across 27 countries — one of the world’s largest and richest markets. Alongside other proposed deals with the United States, Chile, Peru and the Eurasian Economic Union, it could help generate the millions of jobs India needs each year.