In Summary
After signing the EU–Mercosur agreement on 17 January, the EU is looking to speed up its trade policy momentum to diversify trade structures in a more fragmented global economy. A trade deal with India could be finalized at the EU-India summit this week.
The EU and India together represent a substantial global trade block, with a combined GDP of 21.1%, accounting for one-third of global exports – with complementary trade structures – and 23.4% of the world’s population.
A potential EU-India Free Trade Agreement could add USD19.2bn to EU exports each year (an increase of +0.3%), boost EU GDP by +0.1pp annually and offset nearly a quarter of US-related export losses from higher US tariffs despite the current EU-US trade agreement. The main beneficiaries would be Germany (USD4.8bn), France (USD2.8bn) and Italy (USD2.2bn), while trade diversion would mainly affect China (-USD2.0bn) and the US (-USD0.7bn). India could gain USD11.7bn annually, creating USD9.0bn of new trade and diverting USD2.7bn away from other markets. Overall, we estimate that the EU could compensate for current losses from the US-EU trade deal with USD123bn of additional EU exports from new FTAs if all remaining tariffs across all partners are eliminated.
From an industry perspective, Europe could see exports increase in machinery and equipment and transport equipment incl. auto as they are key exports to India with further room to grow, while India could export more textiles and mineral products. Despite headlines on lower Indian tariffs on cars, the EU auto sector would only get a minor boost in exports (less than USD50mn). A deal could also result in more trade in chemicals, besides offering significant opportunities in technology and AI-related sectors, where Europe's capabilities could complement India's scale and digital workforce. This could support deeper cooperation and more resilient supply chains.