The ongoing negotiations between India and the European Union (EU) for a Free Trade Agreement (FTA) are facing significant hurdles due to stringent EU environmental and regulatory policies. While the deal aims to enhance trade opportunities, new measures imposed by the EU could create unexpected financial and logistical burdens for Indian exporters, raising concerns about whether the agreement will truly benefit both parties.
A key challenge stems from the EU’s Carbon Border Adjustment Mechanism (CBAM), which will introduce tariffs ranging from 20% to 35% on carbon-intensive imports such as steel, aluminum, and cement starting in 2026. Designed to encourage sustainability, CBAM could, however, erode the competitiveness of Indian exports, making it more expensive for Indian firms to access the European market. In addition, the EU’s strict deforestation regulations require that imported agricultural products must not originate from land deforested after 2020, further complicating compliance for Indian exporters in sectors like coffee, palm oil, and timber.
Beyond environmental policies, regulatory barriers in the digital economy also pose risks to India’s trade interests. The EU enforces rigorous data protection laws and only allows seamless data transfers with countries it deems “data secure.” India currently lacks this status, meaning Indian businesses handling European consumer data could face higher compliance costs and restricted access to the digital services market. Given the rapid growth of India’s IT and digital services sector, gaining “data secure” recognition remains a key priority in FTA discussions.
These combined challenges indicate that even if an FTA is signed, Indian exporters may still face substantial trade barriers. To counter these effects, India is pushing for exemptions or mechanisms within the deal to offset the impact of CBAM and data restrictions. Without such measures, Indian industries may struggle to reap the expected benefits of tariff reductions and increased market access.
As negotiations continue, both sides must balance environmental sustainability with equitable trade practices. While the FTA could unlock vast economic opportunities, resolving these regulatory concerns will be critical to ensuring a deal that supports mutual growth rather than creating new trade obstacles. The outcome of these talks will ultimately determine whether this long-anticipated agreement delivers real economic gains or remains mired in bureaucratic and regulatory complexities.
