The EU-India agreement cannot replace the US-India pact

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Although the temperature in Davos is below freezing, geopolitical tensions are high was on the boil US President Donald Trump’s pursuit of Greenland has strained transatlantic relations.

As Europe resists Trump, it is now seeking new trade alliances, focusing on partnerships with India, the world’s fastest-growing major economy.

European Commission President Ursula von der Leyen told the World Economic Forum in Davos on Tuesday that the European Union was “on the verge of a historic trade deal” with New Delhi. “We choose fair trade, not tariffs. Partnership rather than isolation. “Sustainability over exploitation,” he said.

It could be a much-needed blow to New Delhi, which has been facing punitive US tariffs. Since Trump imposed 50 percent tariffs on Asian economies in August last year, it has looked at alternative markets for its exports and struck trade deals with several countries.

“India’s openness to trade deals predates Trump 2.0, but we’ve seen deals accelerate as countries seek to grow together in an uncertain global environment,” said Richard M. Rossow, senior adviser and chairman for India and emerging Asian economies at the Center for Strategic and International Studies.

In the past few months, India has announced trade deals with the UK, Oman and New Zealand. On Monday, the UAE and India pledged to increase trade to more than $200 billion by 2032, with New Delhi also signing a $3 billion LNG purchase deal with the Middle Eastern country.

India hopes the European Commission president’s January 25-27 visit to New Delhi will culminate in an announcement of a trade deal as the country looks to boost exports and offset trade deficits. drop in shipments U.S. analysts told CNBC that an agreement announcement during the trip is likely.

But they also say the India-EU trade pact, which some have called the “mother of all deals” — a description von der Leyen highlighted in her speech at the WEF — will not replace the US as India’s No. 1 export destination.

“The EU deal is now central to India’s foreign economic strategy as there is no trade deal with the US,” said Arpit Chaturvedi, a consultant at Teneo’s geopolitical risk advisory group.

It would give India an “alternative foothold in the West” and restore some trade leverage to reach a deal with the US, he added.

According to European Commission data, trade in goods between India and the EU will reach €120 billion (about $140 billion) in 2024, making it India’s largest trading partner. Machinery and equipment, chemicals, base metals, mineral products and textiles are New Delhi’s main exports to the bloc.

Radhika Rao, senior economist at DBS Bank Singapore, said a trade deal with the EU may not cover sensitive segments such as steel, autos and agriculture, which could be dealt with individually.

EU countries’ trade with India is almost equal to New Delhi’s trade in goods with the United States and China.

But key trade figures do not reflect the reality of India’s dependence on the US market: India’s merchandise trade surplus with the US in 2024 was $45.8 billion, compared to a significantly lower $25.8 billion for the EU.

India’s total exports to the six major markets of the European Union are Netherlands, Germany, Italy, Spain, France and Belgium — For the nine months ending in December, it was $43.8 billion, compared to $65.88 billion for the US alone.

Given the size of its exports to the U.S., most of the deals New Delhi makes are “partial shock absorbers” rather than tools for losing trade with the U.S., Teneo’s Chaturvedi said.

“The India-EU deal may partially ease the impact of US tariffs on exports,” said Vishrut Rana, senior economist at S&P Global Ratings, but added that the trade deal with the US remains important for the Indian economy.

The agreement between India and the US has been a work in progress for a long time. Earlier this month, US Commerce Secretary Howard Lutnick podcast It said India could become the second country to sign the agreement with Washington in May, after Britain.

“I made the deal. But Modi had to call President Trump. They weren’t comfortable with that, so Modi didn’t call,” Lutnick said. The Indian side called these comments “inaccurate”.

After Lutnick’s speech, Sergio Gore, who took over as US ambassador to India on January 12, said that finalizing a trade deal with a major country like India is “no easy task”, but the US is “determined to get there”.

The lack of a deal has put further pressure on the Indian rupee amid volatility in exports to the US Export then decreased by 1.8% in December to jump 22.6% in the previous month. The rupee is trading at 91.56 tenge per dollar improvement Due to the trade agreement with the USA

While the “mother of all deals” is important to New Delhi, it is unlikely to be large enough to protect the country from the negative impact of US tariffs in the absence of a trade pact.

“The loss of the US market will never be compensated by the EU through the EU,” said Ajay Srivastava, founder of the New Delhi-based think tank Global Trade Research Initiative.

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MUFG Bank spokesman Michael Wan said continued inflows of foreign institutional investors and repatriation of foreign direct investment to India from private equity players are the reasons why the rupee is expected to underperform in 2026 relative to other countries.

Amish Shah, head of India research at BofA Securities, detailed his outlook for the Indian market in the year ahead, saying the lack of fiscal room for stimulus measures in the Union Budget for FY27 could lead to a market sell-off.

Need to know

India and UAE plan to double bilateral trade. India is planning increase The volume of trade with the United Arab Emirates will reach 200 billion dollars by 2032. State companies of the two countries signed a 10-year 3 billion dollar agreement on the supply of liquefied natural gas.

Reliance Retail’s growth slowed in the December quarter. The third largest vertical of India’s largest conglomerate, Reliance Industries has announced. slowly growth, leading analysts maintained a buy rating on Reliance shares, downgrading their earnings estimates and lowering their target price for the stock.

India’s exports to China increased in December. Export to China rose In December, exports rose 67% to $2 billion, while shipments to the US — New Delhi’s biggest export market — fell 1.8% to $6.8 billion.

In the markets

As of 14:20 local time Awesome 50 and the BSE Sensex was about 0.1% higher. Both indices had a poor start to the year, with the Nifty down 3.53% and the Sensex down 3.8%.

India’s 10-year government bond yield fell for the third day in a row, most recently at 6.638%.

The rupee weakened to another record low against the dollar on Thursday, hitting 91.64 against the greenback.

– Lim Hui Jie

It’s coming

January 23: HSBC India manufacturing, services PMI flash

January 25-27: European Council President Antonio Luis Santos da Costa and European Commission President Ursula von der Leyen will visit India.

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