The Red Folder

Sarah Kumar — January 27, 2026

This month, for India’s 77th Republic Day, European Commission President Ursula von der Leyen and European Council President Antonio Costa will head to New Delhi for the first time as chief guests. As the European Council explained in a press release, since October 2025, the Council of the EU has been interested in and supported a strategic agenda regarding India. They are focused on strengthening EU-India ties in policy areas like trade, security and defence. 

The momentum stems from converging geopolitical pressures reshaping global trade architecture. President Donald Trump’s imposition of 50 percent tariffs on Indian exports in August 2025 created urgent pressure for New Delhi to diversify its export markets beyond the United States, which had generated a $45.8 billion trade surplus for India in 2024. Trump’s unpredictable trade policies, including recent threats over Greenland against European allies, have similarly motivated the EU to reduce dependence on unreliable partners.

Both sides face strategic vulnerabilities requiring new partnerships. China’s assertiveness and the EU’s over-reliance on Chinese supply chains have created shared concerns about economic security. The erosion of the WTO-based trading system and the emergence of managed trade regimes have pushed middle powers like India and the EU toward closer cooperation to preserve their strategic autonomy in an increasingly fragmented world.

The summit is producing concrete outcomes linking two billion people and approximately 25 percent of global GDP. In the Summit, an agreed-upon trade agreement covers textiles, pharmaceuticals, automobiles, electronics and digital services, though agriculture remains excluded due to domestic sensitivities on both sides. For India, the deal promises restored market access to Europe and tariff relief for labor-intensive exports. For the EU, India offers a fast-growing market and supply-chain diversification away from China.

Beyond economics, a Security and Defence Strategic Partnership is being signed, marking the third such comprehensive agreement the EU has concluded in Asia. This expands cooperation in maritime security, counter-terrorism and cyber defense. The EU’s participation in Republic Day celebrations with a military contingent symbolizes the evolution from episodic engagement to sustained strategic alignment across multiple domains.

Trump’s aggressive trade policies have paradoxically accelerated the India-EU partnership. While New Delhi has been pursuing trade deals for years, Trump’s tariffs created undeniable urgency. Analysts suggest that signing a major deal with Europe sends a clear message to Washington that India has options and will act on them, potentially jolting stalled US-India negotiations out of their rut.

However, experts caution that the EU-India agreement cannot fully compensate for the loss of American market access. India’s goods trade surplus with the EU was only $25.8 billion compared to $45.8 billion with the US. While the deal serves as a “partial shock absorber,” a comprehensive trade agreement with the United States remains essential for India’s economic trajectory, making the EU pact a complement rather than a substitute.

The India-EU agreement carries implications for regional players and global trade dynamics. ASEAN countries, which already saw their share of Indian imports decline after India signed FTAs with Japan and South Korea, may face increased competition in European markets. India’s closer alignment with the EU could also pressure China, which has been consolidating Asian supply chains around itself through upgraded FTAs with ASEAN.

The deal strengthens the emerging pattern of middle powers forming alternative partnerships outside the US-China binary. Following similar logic, Canada recently approached China to reduce reliance on America, while the EU finalized its Mercosur agreement after two decades of negotiations. This India-EU partnership demonstrates how trade fragmentation is creating new opportunities for countries willing to hedge against dependence on major powers.

Furthermore, this development signals a fundamental shift in global economic architecture. In a world defined by protectionism and transactional diplomacy, the India-EU partnership offers an alternative based on shared democratic values and strategic autonomy rather than sphere-of-influence politics. India gains economic insurance against trade disruptions while advancing its manufacturing ambitions through defense co-production and technology transfer.

For the EU, partnering with the world’s fourth-largest and fastest-growing major economy provides crucial diversification as it navigates tensions with both China and the United States. The agreement positions both sides to shape multilateral governance at a moment when traditional institutions face credibility challenges. It represents a bet that rule-based cooperation between democracies can still succeed even as the global trading system fragments.

Yet, significant obstacles threaten to undermine the partnership’s promise. The EU’s Carbon Border Adjustment Mechanism (CBAM) could impose charges of 20-35 percent on Indian steel and aluminum exports, potentially eroding FTA gains. India views CBAM as a climate inequity, while the EU sees it as an essential environmental policy. This fundamental disagreement on climate-linked trade measures remains unresolved.

Additionally, India and the EU also diverge on relations with Russia, views on intellectual property protection and ideas about data regulations. Domestic political sensitivities around agriculture, labor standards and quality control measures will further test implementation. Successfully managing these tensions while maintaining momentum will determine whether this reset produces lasting cooperation or becomes another chapter of unfulfilled promise in the long history of India-EU relations.