India and the European Union have signed a long-awaited free trade agreement after negotiations stretching, with interruptions, across almost two decades. The agreement links an Indian economy of more than 1.4 billion people with the EU’s roughly 450 million consumers and is intended to reduce tariffs across most goods, improve access for services and investment, and deepen cooperation in sectors ranging from manufacturing and pharmaceuticals to clean technology. For India, the timing is particularly important. Relations with the United States have become more transactional under Donald Trump, China remains both a major trading partner and India’s principal long-term strategic competitor, and the Iran conflict has demonstrated how dangerous excessive dependence on particular countries or routes can become. The agreement therefore matters beyond the additional exports it may create. India and Europe are both attempting to build strategic autonomy through greater interdependence with one another, which sounds contradictory until we recognise that dependence becomes politically dangerous mainly when there are too few alternatives.
This is an important correction to the idea that strategic autonomy means producing everything domestically. If India attempted to eliminate foreign dependence entirely, it would sacrifice many of the gains from comparative advantage that helped generate its economic growth in the first place. No advanced economy is genuinely self-sufficient. The United States imports critical minerals, Europe imports energy, China imports commodities and India imports technology and fuel. The relevant question is therefore not whether a country depends on others, but whether one external actor possesses enough control over an essential input or market to constrain national choices severely. Diversified interdependence can actually increase sovereignty because it provides substitutes. If access to one market deteriorates, firms can sell elsewhere; if one supplier becomes unreliable, another can expand.
The EU is especially valuable to India because it offers a large, wealthy market whose strategic interests overlap with India’s without being identical to America’s. Europe wants to reduce excessive supply-chain dependence on China, while India wants manufacturing investment, technology and access to high-income consumers. This creates a potentially complementary relationship. European companies can diversify production towards India, while Indian firms gain better access to European demand. The trade agreement therefore can accelerate the China-plus-one strategy, but India should avoid assuming geopolitical concern about China automatically makes Indian manufacturing competitive. A company will tolerate some additional cost for resilience, but not unlimited inefficiency. India still needs reliable electricity, ports, logistics, skilled labour and predictable regulation if factories are to remain after geopolitical subsidies disappear.
This is where trade agreements can function as domestic reform mechanisms. Lower tariffs expose domestic firms to stronger competition, forcing some to become more productive while others may contract. That disruption is precisely why protectionism remains politically attractive: the losses from trade are concentrated among identifiable workers and firms, while consumer gains are distributed across millions of people through slightly lower prices and greater variety. Economists can therefore demonstrate that trade raises aggregate welfare while still underestimating its political difficulty. A government signing a free trade agreement needs policies for workers and industries facing adjustment rather than simply insisting that national GDP eventually rises.
India’s historical protectionism makes this particularly relevant. High tariffs can protect infant industries temporarily, allowing firms time to build scale and technological capability. But protection becomes counterproductive when temporary shelter turns into permanent insulation from competition. A firm that knows imports will remain expensive has weaker incentives to increase productivity. Consumers then pay higher prices to preserve domestic producers regardless of performance. The correct industrial-policy question is therefore not whether government should protect industries, but whether protection is conditional on measurable improvement and eventually expires.
Europe faces a parallel challenge. European manufacturers worry about competition from lower-cost production, while farmers and environmental groups often demand strong standards for imported goods. These concerns can be legitimate, but regulatory standards can also become disguised protectionism when they impose costs on foreign producers without equivalent economic justification. Free trade does not require abandoning environmental or labour rules. It requires distinguishing standards protecting legitimate public goods from standards designed principally to protect domestic producers from competition. The credibility of the agreement will depend partly on whether both sides resist using regulation to recreate tariffs under another name.
The deal also matters strategically because India’s relationship with Washington has demonstrated the risks of excessive reliance on one Western partner. The United States remains enormously important for technology, investment, defence cooperation and balancing China, and India should deepen that relationship where interests overlap. But Trump’s willingness to use tariffs against allies and partners has shown that strategic cooperation does not guarantee economic predictability. Europe provides another major economic relationship, reducing the cost to India if American policy changes abruptly. Autonomy therefore comes not from refusing partnerships but from having enough partnerships that no single one becomes indispensable.
Europe is pursuing the same logic from the opposite direction. The Trump administration’s Greenland dispute, tariff threats and demands for greater European defence spending have encouraged European governments to diversify relationships beyond Washington. India offers something particularly useful because it is large enough to become a major economic pole without demanding the political alignment China might eventually seek. India will disagree with Europe over Russia, climate policy, intellectual property and other issues, but that may actually make the relationship more durable. Partnerships built around overlapping interests rather than ideological conformity can survive disagreement because neither side expects complete alignment.
The agreement also creates opportunities in pharmaceuticals, digital services and technology, areas where India already possesses comparative advantages. European ageing will increase demand for healthcare and skilled services, while India’s younger workforce can supply part of that demand if mobility rules become more flexible. This highlights another aspect of trade often ignored in political debate: modern comparative advantage increasingly involves people and data as well as physical goods. A software engineer in Bengaluru can export services to Germany without any container crossing a port. Trade policy therefore needs rules governing professional qualifications, data protection and digital commerce alongside tariffs on manufactured products.
India should nevertheless be careful not to evaluate the agreement through the trade balance alone. Political debates often treat exports as victories and imports as losses, but imports are part of the reason trade creates welfare. Indian firms importing better European machinery can become more productive. Consumers importing cheaper or higher-quality goods gain purchasing power. The objective is not maximising exports while minimising imports; that would simply reproduce mercantilism. The relevant objective is increasing real income and productive capacity. A trade deficit can be sustainable if it finances productive investment, while a trade surplus can coexist with weak household consumption. Bilateral balances therefore are poor measures of whether an agreement works.
The geopolitical environment makes this especially important. The world is moving away from the assumption that the cheapest supplier should always dominate towards a system where resilience and political reliability matter more. India should exploit that transition without becoming protectionist itself. Its greatest opportunity is to become one of the places companies choose because production is both economically competitive and strategically dependable. That requires a reputation for contract enforcement, stable regulation and infrastructure rather than simply subsidies.
The India-EU agreement therefore should be judged over the next decade through outcomes rather than the number of tariff lines eliminated. Does bilateral trade increase? Do European companies build productive capacity in India? Do Indian firms move into higher-value manufacturing and services? Does competition improve productivity? Are workers displaced by imports able to move towards expanding sectors? Does India become less vulnerable to economic pressure from any single great power? These questions determine whether the agreement strengthens genuine autonomy.
The political philosophy underneath the deal is more interesting than its tariff schedule. Sovereignty is often imagined as freedom from external constraint, but modern prosperity depends upon voluntary exchange with other societies. Absolute independence would therefore make countries poorer and, paradoxically, often weaker. The more useful conception of sovereignty is the capacity to enter relationships without becoming trapped by them. India and Europe do not need to become politically aligned on every issue. They need enough mutual economic value that cooperation remains rational even when disagreement occurs.
That is why this agreement may eventually matter more strategically than many formal diplomatic declarations. It gives both sides another option. In an international system increasingly shaped by coercive tariffs, sanctions, supply-chain restrictions and geopolitical rivalry, having alternatives is itself a form of power.
