1. Unequal exchange will transfer value from India to Europe.
Currently, commodities produced in the European Union are more expensive than commodities produced in India. For instance, a 750ml bottle of Coca-Cola in India costs 40 rupees, while a similar bottle in countries like Germany would cost 1-1.5 Euros or about 135 rupees. This price difference reflects differences in wages and the cost of production in general, and across industries, European commodities sell at a relative premium, while Indian commodities sell at a relative discount. This results in a loss of value or a loss of income from India to the EU, because if both these countries were to trade Coca Colas, for every one bottle that the EU exported to India, India would have to export three or more.
Since countries typically trade different goods, this price difference is not directly visible but continues to shape the terms of trade. As a result, even when India and the EU trade “equal amounts” in monetary terms, there is a transfer of value from India to the EU, a phenomenon described as unequal exchange. In effect, India has to export a much larger quantity of goods to pay for fewer European goods. Even if trade appears “equal” in money terms, more real value flows from India to Europe.
2. Tariff cuts will benefit European goods far more than Indian goods
Before the FTA, tariff rates on EU commodities in India were relatively high (often higher than 70 or even 100%), while existing tariff rates on Indian commodities traded in the EU were considerably lower (6-24%). At the same time, the EU commodities are also more expensive than Indian goods exported to the EU. For instance, while India exports generic drugs and textiles (currently priced at 5-50 Euros), the EU exports luxury automobiles and high-value pharmaceuticals (priced at tens of thousands of rupees or hundreds of Euros). As tariffs are reduced, the price of European goods in India will fall sharply, making them much more competitive in Indian markets. In contrast, the price reduction for Indian goods in Europe will be relatively small and may not significantly increase demand. This asymmetry means that imports from Europe are likely to grow much faster than Indian exports to Europe. For illustration, consider, for instance, that a 1% reduction in prices leads to a 1% increase in demand, then the demand for European commodities would increase by 70%, but the demand for Indian commodities would only increase by about 15%.
This imbalance will have two major consequences. First, there will be a larger increase in EU ex-ports to India than in Indian exports to the EU, leading to a worsening of India’s trade balance. Note that the EU is one of the few entities with whom India holds a large export surplus (2.4 lakh crore rupees in 2024). This imbalance will likely reduce India’s existing trade surplus with the EU. As im-ports from Europe grow faster than exports, India may face pressure on its foreign exchange re-serves, which can weaken the rupee. A weaker rupee makes imports more expensive and increases economic vulnerability. A trade deficit would also increase the incentive to export (for foreign cur-rency) and result in settling for lower prices for the exports, which would worsen the terms of trade (the ratio of the price of exports to imports). This will then further worsen unequal exchange.
Second, there will be a greater penetration of European goods into Indian markets than Indian goods into European markets (recall the 70% and 15% example). At the same time, Indian producers losing domestic market share to cheaper European imports will not find equivalent opportunities in export markets, leading to job losses.
3. Farmers will be indirectly affected through changes in food consumption and agro-industry
Although the government claims that agricultural products will be protected, the reduction of tariffs on processed food products can still have serious consequences for farmers. Cheaper imports of processed food from Europe will encourage a shift in consumption patterns away from fresh agricultural produce and towards imported processed goods. This shift reduces demand for agricultural inputs used in domestic food processing industries. Over time, this weakens the link between farmers and the manufacturing sector, leading to a decline in demand for farm produce. There has been a general upward trend in India in the consumption of processed food since the IMF-enforced economic liberalization policies of 1991. A report from the World Health Organization (WHO) shows that the consumption of processed food increased by over 50%, and the consumption of ultra-processed food nearly doubled. With the import of processed food from the EU, farmers may face a reduction in agricultural demand in the manufacturing sector that is currently supplied by Indian farmers, as EU manufacturing may use EU supply chains.
4. Pharmaceuticals may become prohibitively expensive for most Indians
India’s pharmaceutical sector has historically relied on a flexible system of compulsory licensing, which allows the government to authorise the production of cheaper versions of patented drugs when necessary. This has been crucial in ensuring access to affordable medicines. The FTA, however, encourages voluntary licensing, which means companies retain the right to decide whether to license another company to produce the drug. While compulsory licensing is not formally abolished, the Indian government’s commitment to voluntary licensing under the TRIPS agreement may increase the effective ability of European companies to monopolize pharmaceutical markets and drive up costs for consumers, making life-saving drugs expensive and reducing sovereign production and pricing autonomy. Given that India has not issued any compulsory licences since 2014, this shift may further restrict access to affordable medicines while offering limited export gains for Indian generic manufacturers. Overall, the existing tariffs are low (11% each), and the tariff reductions need not generate a large boost in demand, especially for Indian generic manufacturers whose commodities will be priced at 10 euros instead of 11 euros, say. As a result, the agreement risks raising costs for consumers while offering limited benefits to domestic manufacturers, further weakening India’s ability to regulate its pharmaceutical sector in the public interest.
5. Key export sectors may not see real gains
Sectors such as textiles, leather, and marine products are often cited as beneficiaries of the agreement. In these sectors where the production capacity is currently higher than global demand in these sectors, after US tariffs on Indian commodities, and therefore, the benefit of tariff reductions in the EU would at best control the damage from tariffs imposed by the US, rather than substantially increase gross revenue of the Indian textile sector over previous years.
The fundamental problem with the India–EU FTA is that it proceeds as if trade takes place between equal partners, despite deep structural inequalities, and it lacks a clear strategic vision. As a result, the final negotiated text fails to safeguard India’s national interests.
