 "FTA, TRADE DEAL, FREE TRADE AGREEMENT")
At periodic intervals, Indian officials raise the possibility of a trade deal with the United States (US), and also a free trade agreement (FTA) with the European Union (EU). A briefing by the external affairs ministry a few days ago said that both deals were being actively pursued with the aim of concluding a fair, balanced and mutually beneficial agreement.
After the recent, speedy conclusion of trade deals with Oman and New Zealand, there may be a tendency to assume that both the US and EU deals could happen reasonably soon, especially the latter. After all, European Commission President Ursula von der Leyen and European Council President António Costa will be in New Delhi as guests of honour for Republic Day. What could be better than getting the deal initialled when they are here?
A few days ago, India’s ambassador to the US, Vinay Kwatra, met Sergio Gor, the US ambassador to India, to push for an early trade deal. Chief Economic Advisor V Anantha Nageswaran said the deal was nearly done, but was perplexed by delays. Still, he volunteered that he would be surprised if it does not get done by the end of the financial year (i.e. by March 2026).
There is, actually, less reason for optimism on the US deal today thanks to one man: Donald J Trump. The US President has been changing the goalposts for India repeatedly. It started with a demand that India reduce its trade deficits by buying more from the US; then it became about acknowledging his alleged role in brokering a ceasefire with Pakistan last May; then it became about Russian oil; and two days ago he said it was all about India making him happy.
India would like a good trade deal with the United States of America, but what we are being forced to negotiate is a dubious deal with one vain man in the White House. That trade deal would not be worth the paper it is written on if Mr Trump’s political fortunes start reversing as America comes to its constitutional senses, or even if he gets up in a different mood one fine day in the coming months.
Maybe these deals will happen soon, maybe they will get delayed. But India’s policymakers, and especially the markets, would do well to assume that their conclusion may take time. It is time to prepare for worst-case scenarios, and not build national trade policies on a wing and a prayer. Doing a trade deal with Mr Trump, who currently rules by personal fiat and decree in defiance of constitutional norms, may not stand judicial scrutiny in his own country.
Both the US and the EU are going through massive internal political and economic convulsions, with different ideological lobbies seeking to tear each other apart.
In the US, the breakdown of the elite consensus after the election of Mr Trump, and his wayward behaviour for much of 2025, makes political consensus difficult. His own Maga (Make America Great Again) base is split between the realists, and the hard-boiled Right-wing ideologues who don’t want any concessions to be made to India despite Big Tech’s push on India’s behalf, especially on H-1B visas and services. Despite being confirmed as US ambassador in October, Sergio Gor is yet to set up shop in India. Probably his biggest battles are in the US itself.
The Trump administration is battling the political fallout from the release of the Epstein files, where some details of Mr Trump’s alleged close relationship with sex-trafficker Jeffrey Epstein were disclosed. Epstein was awaiting trial on charges of sex-trafficking of women and young girls when he apparently committed suicide in jail in 2019. The Epstein files do not only deal with Trump, but an entire category of politicians and businessmen who constitute the elite. The US Deep State needs the distraction of trade and other external conflicts to deflect public scrutiny from focusing too much on Epstein. Hence Mr Trump’s focus on Greenland and his bashing of Venezuela, where the US behaved like a highway brigand, kidnapping a sitting President and his wife and shipping them to America for a taste of “American justice”.
In Europe, which is busy shooting itself in the foot over Ukraine — it recently chose to permanently freeze Russian sovereign assets, thus dealing a blow to international confidence in its financial system — the Union is sharply divided between those who want to support Ukraine to the hilt, and those who do not want the war to continue endlessly, draining resources needed for growth and jobs. As Europe gets a taste of Mr Trump’s ridicule and his threats regarding Greenland (which would be the first time a North Atlantic Treaty Organization leader had threatened another Nato member’s territory), Europe is sounding increasingly unhinged about Ukraine. While Mr Trump is trying to get a deal with Vladimir Putin and penalising India for his failure there, Europe is promising itself that it will defend Ukraine to the bitter end, and ultimately may decide that someone else is to blame for its follies, just as Mr Trump decided India must pay higher tariffs because he could not get Mr Putin to end the war.
The future of both Nato and the EU is now in some doubt. In December, the EU was set to sign its biggest trade deal with the Latin American Mercosur bloc, but the deal was postponed by a month after Giorgia Meloni of Italy threw a spanner in the works at the last minute. The deal, if signed, would create one of the largest trade blocs in the world, tying the EU to Mercosur, which includes Brazil, Argentina, Uruguay, and Paraguay.
A deal that was negotiated in fits and starts over 20 years is still stuck in limbo, held hostage by internal rifts within the EU. Farmers in France, Poland and Italy are said to be the main roadblocks to the deal, though Ms Meloni is said to have assured Brazilian President Luiz Inácio Lula da Silva that she would sign up the minute she can get her farmers to agree. She could be separately trying to get more EU support for her farmers in order to remove her veto. But EU finances are strained in a climate of weak growth. In a union where voting weights are based on population sizes, a qualified blocking minority can stall decisions if four countries representing at least 35 per cent of the union’s population decide to do so.
This is the US and EU context in which India is trying to get a trade deal, and one cannot assume that the EU collectively is more eager to get the deal done than America. Both are grappling with internal quarrels and opposition. They are fighting political wars within, and, as the political Right gets stronger in the EU, even the current limited political consensus will start looking weak.
India would do well to plan for worst-case scenarios. The crystal ball for big-ticket trade deals looks cloudy at the start of 2026.
The author is a senior journalist
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
