Bilateral trade agreements are rarely swift or simple. They evolve through long negotiations, calibrated compromises, and careful protection of domestic interests. In this context, India’s two major trade engagements — one with the European Union and the other with the United States — mark a decisive moment in India’s trade diplomacy. While both connect India to the world’s largest economic blocs, their design, motivations, and implications differ in important ways.
India’s negotiating red lines and economic self-confidence
Across both agreements, India has held firm on two core principles. First, it has refused to compromise on vulnerable sectors such as agriculture, dairy, and small and medium enterprises, ensuring that the interests of small farmers and informal producers are protected. Second, India has negotiated from the position of a more mature, market-driven economy, shaped by reforms in governance, regulation, logistics, and digital infrastructure.
This confidence distinguishes current negotiations from earlier trade talks, where India was often seen as defensive or reluctant. The present approach reflects an economy that is no longer inward-looking but still cautious about uneven integration.
EU versus US: where the negotiations diverge
The most visible divergence lies in regulatory philosophy. In the EU negotiations, the issue of the Carbon Border Adjustment Mechanism (CBAM) looms large. India has had to engage deeply with climate-linked trade barriers that could affect its manufacturing exports.
In contrast, CBAM does not feature in the US interim agreement. Instead, labour mobility and geopolitical considerations play a larger role. The EU deal places significant emphasis on mobility for skilled professionals, while the US framework is more tightly linked to strategic and geopolitical realities.
What the EU FTA delivers for India
Under the EU FTA, India has secured market access for over 99 per cent of its exports to the EU by trade value. This is unprecedented and directly supports domestic manufacturing under the “Make in India” initiative. Beyond goods, the agreement unlocks high-value commitments in services, supported by a structured mobility framework that enables smoother movement of Indian professionals.
An estimated $75 billion of Indian exports stand to benefit, with nearly $33 billion coming from labour-intensive sectors such as textiles, leather, and light manufacturing — areas crucial for employment generation.
The US interim deal: geopolitics meets trade
The US interim agreement is best understood as a by-product of shifting global geopolitics. Its timing — following major deals with the EU and the UK — reflects India’s sequencing strategy rather than haste. The agreement fits into a broader arc of negotiations spanning the Middle East, the UK, and New Zealand, signalling the emergence of a new trade order centred around South Asia.
Criticism of the US deal has focused on tariffs, but even after the new 18 per cent tariff regime, the gap between India’s MFN simple average tariff and the applied tariff remains among the lowest relative to many countries, including regional peers.
Addressing concerns on tariffs, exports, and energy
Data from the first nine months of FY26 suggest that India’s exports of goods and services have grown by 4.3 per cent, nearly matching a hypothetical no-tariff scenario, even under a high-tariff environment. This weakens claims that the deal will sharply constrain export performance.
On energy, a hypothetical shift from Russian crude to Venezuelan heavy crude (Merey 16) could offer discounts of $10–12 per barrel, potentially saving up to $3 billion on India’s import bill. This indicates that inflationary risks from the trade deal are likely to be limited.
Sectoral gains under the US framework
The US deal opens access to a $118 billion global market for textiles and apparel. It also removes the 25 per cent penalty linked to Russian oil imports, subject to adjustments in India’s energy basket. Crucially, the US has signalled that the interim framework is a stepping stone toward a full Bilateral Trade Agreement, with scope for further tariff reductions.
India has agreed to reduce or eliminate tariffs on US industrial goods and selected agricultural products such as DDGs, tree nuts, fruits, soyabean oil, wine, and spirits — while continuing to shield its core agri and dairy markets. Given that India already imports most of these products in limited quantities or from other sources, consumer welfare gains are likely.
Competitive advantage and GDP upside
Among the top US imports, India has a revealed comparative advantage in chemicals and pharmaceuticals, sectors currently dominated by China and Singapore. With higher tariffs on China, India can realistically capture a larger share. Even modest gains — a 2 per cent share shift — could add around 0.2 per cent to GDP, with additional upside from apparel exports diverted from Bangladesh, Cambodia, and Indonesia.
India’s plan to import $500 billion worth of US energy, aircraft, technology products, and coking coal over five years could also help diversify capital goods imports away from China.
What to note for Prelims?
- Key differences between India–EU FTA and India–US interim trade deal.
- CBAM and its relevance in EU trade negotiations.
- MFN tariffs and sectoral tariff reductions.
- Role of labour mobility in trade agreements.
What to note for Mains?
- India’s evolving trade strategy amid geopolitical shifts.
- Balancing market access with protection of agriculture and SMEs.
- Economic and employment implications of FTAs.
- How India leverages trade deals to reshape global supply chains.