How India and the EU are shaping a new geo-economic alliance

India and the European Union are on the cusp of a historic realignment based on strategic interests and shared values. The inflection point benefits from the conclusion of the Broad-based Trade and Investment Agreement (BTIA) and collaboration in future-oriented areas such as technology, energy, sustainability, defence, space, and mobility. BTIA will have a profound influence on trade and investment, economic activity and regulatory framework, while strategic cooperation will balance geopolitics and geoeconomics.

India and the EU had established summit-level interaction in 2000, and relations were upgraded to a strategic partnership in 2004. Despite a high-level understanding, progress on the EU track lagged behind India's close bilateral ties with major European powers.

Lengthy negotiations

Negotiations for BTIA, launched in 2007, had slow progress and were paused in 2014. The EU had prioritised investments in the faster-growing Chinese market and championed WTO provisions expanding trade defence. India’s relatively small GDP and trade share, at that time, limited its leverage. But much had changed by 2021, when negotiations resumed, and the two sides saw benefit in meeting halfway for consensus on difficult issues. Political will for BTIA, supported by industry’s need for resilient supply chains, pushed for a new framework. Externally, China’s economic coercion, supply chain disruptions and acquisition of strategic assets had dimmed its lure. In contrast, India’s growth story was compelling and could not be ignored. Distress in the multilateral system and an ineffective WTO led India and the EU to negotiate several bilateral FTAs. Shifting geopolitics and geoeconomics demanded a robust partnership between India, the largest democracy and emerging power and EU, the bastion of high technology, regulatory framework and capital. Last year’s developments jolted strategic balance and multilateralism, hastening the India-EU consensus that was underway.

Strategic orientation

The state visit of European Council President António Luís Santos da Costa and European Commission President Ursula von der Leyen will set the stage for agreements on key components of the strategic partnership.

Economic coordination

Sanjay Bhattacharyya

The BTIA platform can help India’s market access aspirations, although the EU’s regulatory framework will be challenging. Indian exporters will need to diversify and upgrade quality, but the industry is confident it will stimulate the revival of manufacturing, especially MSMEs, and prepare them for global competition. Moreover, as investments and technology usually follow trade, there would be new opportunities to develop niche specialisation and scale economies for global presence in diversified supply chain partnerships.

Knowledge sector engagement

Digital economy, technology and skill mobility are today’s vectors of development. Trust and confidence will facilitate AI, cyber and semiconductor R&D, establish technology hubs and innovation bridges, mobility of professionals, expansion of GCCs, etc. EU’s open strategic autonomy in tech, health and energy can align with India’s skills and scale for resilient and autonomous partnerships.

Political understanding

Expanding India-EU convergence on values such as democracy, human rights and sustainability will benefit from consultation and coordination. This can reduce frictions and revive the rules-based order, multilateralism and multipolarity. It can also address differing perceptions on issues such as Ukraine-Russia, terrorism and climate change.

Strategic cooperation

Growing trust and reliability have opened possibilities in strategic areas such as defence cooperation, military industry, critical technologies and critical materials, space, energy, etc. EU’s engagement in the Indo-Pacific, support to the India-Middle East-Europe-Economic Corridor and third country initiatives in Africa are indicative of the strategic approach. A community of 2 billion people contributing a quarter of global GDP is both an opportunity and a responsibility. India and the EU are ready to play their due roles in global governance to shape the new world order.

It is evident that India-EU relations fell short of their potential, and there is recognition for its careful nurturing. Today, we are poised to transition from a trade-centric relationship to a geopolitical-geoeconomic partnership. In the emerging multipolar order, both India and EU will play key roles with their own approaches to strategic autonomy.

(The writer is a former diplomat and currently a professor at Jindal Global University)