Labour mobility can unlock real FTA gains

By embedding India deeper into European supply chains, the deal opens up diverse avenues for a ready workforce.

The India-European Union free trade agreement, anchored between two major global markets accounting for roughly 25% of global share and GDP, comes at a crucial time. EU-India goods trade has grown sharply, complemented by €83 billion in services trade in 2024 and an increase in European investment into India. EU’s FDI stock in India also rose to €140.1 billion in 2023, and nearly 6,000 European companies now operate in the country.

The agreement will seek to eliminate or reduce tariffs on 96.6% of EU exports to India, a change expected to double European sales by 2032 and save firms about €4 billion each year. In exchange, India will receive preferential access for over 99% of its export value to the EU, providing a major boost to labour-intensive sectors such as textiles, leather, marine products, gems and jewellery, chemicals, and base metals. Close to $33 billion of these exports will see tariffs fall to 10% or to zero, a crucial gain at a time when the United States has raised tariffs on some Indian goods to 50%. India also secures predictable access to 144 EU service subsectors and a mobility framework covering corporate transferees, professionals, and students. 

Reductions in machinery, chemicals, pharmaceuticals, and automotive tariffs create reciprocal access in sectors central to EU competitiveness, while calibrated openings in agri-food allow India to liberalise without exposing sensitive farm segments. Beyond tariff reductions, the agreement promotes regulatory alignment across sustainability, carbon accounting, certification, digital trade, and product standards. It strengthens customs cooperation and risk management systems to translate market access into actual production shifts rather than simple trade rerouting. The deal also widens European access to India’s financial and maritime services and reinforces intellectual property protections.

Europe’s renewed economic engagement with India is also driven by structural economic pressures rather than diplomatic symbolism. EU growth is expected to remain low (1.3% in 2025 and 1.2% in 2026), but the deeper challenge lies in a labour market stretched far beyond capacity. More than three-quarters of EURES countries report critical deficits across essential technical and industrial occupations. The wind energy sector requires 150,000 additional workers by 2030, and the solar industry has begun to slow despite employing more than 865,000 people.

Europe is projected to need more than one million additional workers for its green economy in the coming decade. Industrial cost structures are also under strain. Rising energy and material costs account for more than one-third of operating expenses across several sectors. These pressures have pushed the EU to externalise segments of production to reliable and cost-efficient partners. The agreement turns this demand condition into an institutional pathway.

India, too, has undergone structural changes that position it to absorb this relocated manufacturing demand. The logistics sector is projected to expand from $107 billion to nearly $160 billion by FY28, semiconductor capacity is expected to rise from $38 billion to over $100 billion by 2030, and India has met its target of 50% non-fossil-fuel-installed capacity ahead of schedule. Yet India occupies lower-value positions in EU supply chains, as imports remain dominated by high-value machinery and precision technologies.

The FTA is designed to shift this pattern by embedding Indian firms deeper into European production networks. This shift is reinforced by the India-Middle East-Europe Economic Corridor, which could raise India’s exports by 5-8% by reducing Suez-dependent routes. Electronics, renewable-energy components, pharmaceuticals, medical devices, and automotive systems are the sectors most likely to benefit.

Manufacturing, growing at 5.4% year-on-year with $184 billion in exports in April-August 2005, has become the anchor of India’s growth strategy. Yet nearly 11% of these exports still rely on the US, creating exposure to tariff swings and a more protectionist American industrial policy. The agreement reduces this concentration risk by opening diversified, standards-driven European value chains in areas that broaden India’s strategic manufacturing options. However, realising these gains depends on whether India can also meet Europe’s skill needs, making labour mobility a decisive, yet unsettled arena of the FTA.

A demographic contrast

A central determinant of India’s potential value-gain from the FTA is labour mobility, because in many regulated and technical segments of European industry, meaningful value-chain integration still requires the on-site presence of specialised personnel. EU labour markets face acute shortages across healthcare, construction, engineering and ICT, with 42 occupations officially listed in deficit. These trends increasingly push Europe to source high-skill talent from external partners like India. These shortages are intensified by demographic projections indicating a steady decline in the working-age population through 2050.

India sits at the opposite demographic frontier, with 600 million youth under 25 and employability rising from 33% to over 50% in a decade. In 2024, Indians received 52,890 study and research authorisations, 16,268 EU Blue Cards (20.8%), 3,346 intra-corporate transfer permits (32.7%), and 39,137 seasonal permits –the highest among non-EU countries.

The FTA introduces a structured mobility regime. It secures predictable access for intra-corporate transferees, business visitors, contractual service suppliers across 37 subsectors, and independent professionals across 17 subsectors, including IT, professional services, R&D, and education. Dependents of ICTs gain working rights, and India obtains frameworks for social security agreements, student mobility, and post-study work.

Yet, structural constraints remain. Licensing, sponsorship, and qualification recognition continue to sit with national regulators. The EQF offers comparability, but no automatic recognition, and India’s NSQF remains unaligned. This means Indian engineers, technicians, and healthcare workers must undergo repeated assessments across member states, slowing deployment in regulated sectors.

The implication is clear: tariff liberalisation expands market access, but mobility determines whether India can embed talent inside European production ecosystems and move into higher-value segments of Euro-linked supply chains. Notwithstanding some critical concerns, by aligning with Brussels, New Delhi secures its position as a “sovereign bridge”, leveraging European capital to dilute Washington’s trade arbitrariness while offering a credible, high-standard manufacturing alternative to the Chinese monopoly.

(Deepanshu is Professor of Economics and Dean, O P Jindal Global University; Aditi and Saksham are research analysts with the Centre for New Economics Studies at the university)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.