India-EU pact likely to expand trade, not threaten domestic industry: GTRI

The India-EU free trade agreement, to be announced on January 27, is likely to lower costs and expand trade rather than threaten the domestic industry, think tank GTRI said on Sunday.

The Global Trade Research Initiative (GTRI) said that as global trade is increasingly shaped by tariffs, geopolitics and supply-chain realignment, the India-EU economic relationship stands out for its clarity of purpose.

The two are not rivals but partners operating on "different rungs of the value chain", it added.

India exports labour-intensive, downstream and processing-based goods, while the European Union supplies capital goods, advanced technology and industrial inputs.

"This structural complementarity explains why an India-EU free trade agreement is likely to lower costs and expand trade rather than threaten domestic industry," GTRI Founder Ajay Srivastava said.

 

In FY2025, India-EU goods trade exceeded USD 136 billion, and tariff cuts would primarily reduce input costs, deepen value-chain integration and increase volumes, classic FTA gains that benefit producers and consumers on both sides, he said.

Indian exports to the EU, such as smartphones, garments, footwear, tyres, pharmaceuticals, auto parts, refined fuels and cut diamonds, largely substitute the EU's imports from third countries rather than compete with EU manufacturing, which has long offshored these activities.

EU exports high-end machinery, aircraft, core electronic components, chemicals, quality medical devices and metal scrap, which feed India's factories, recycling industry and MSME clusters, raising productivity and export competitiveness.

"Tariff elimination therefore compresses input costs instead of crowding out industry," he added.

On the other hand, India's USD 60.7 billion in goods imports in FY 2025 from the EU are concentrated in capital-, technology- and input-intensive products.

High-end machinery was India's largest import from the EU at USD 13 billion, including turbojets (USD 810 million), industrial control valves (USD 418 million) and specialised industrial machines (USD 343 million).

India does not manufacture such advanced capital equipment at scale and depends on these imports to run its industrial and infrastructure sectors, the think tank said.

Electronics imports totalled USD 9.4 billion, led by mobile phone parts (USD 3.7 billion) and integrated circuits (USD 890.5 million). India needs these components to assemble smartphones and electronic devices, as domestic IC and component manufacturing remains limited, it said.

India imported aircraft worth USD 6.3 billion and medical devices and scientific instruments worth USD 3.8 billion, along with medicines worth USD 1.4 billion, largely specialised formulations.

"These are high-technology products that India largely does not produce and must source from advanced manufacturing economies," it said.

Similarly, waste and scrap imports of USD 2.1 billion, including aluminium scrap (USD 632 million) and brass scrap (USD 534 million), are key feedstock for India's recycling industry and MSMEs.

It said that India relies on imported scrap because domestic availability is insufficient to meet the needs of its recycling and small-scale manufacturing sectors.

Further, it said the alcohol trade remains marginal. India exported wines worth USD 1.4 million and spirits worth USD 24.5 million to the EU.

Imports from the EU were higher, totalling USD 7.9 million for wines and USD 87.8 million for spirits, reflecting Europe's dominance in premium alcohol.