India–EU FTA and EU FDI Inflows into India (2026–2030)

 India–EU FTA and EU FDI Inflows into India (2026–2030)

Abstract

The finalization of the India–European Union Free Trade Agreement (FTA) on 27 January 2026—often termed the “mother of all deals”—marks one of the most significant milestones in India’s external economic engagement. After nearly two decades of negotiations, the agreement is expected to reshape bilateral trade and investment relations by enhancing market access, improving regulatory certainty, and strengthening supply chain integration. This case-cum-research paper analyzes the potential trajectory of EU foreign direct investment (FDI) inflows into India during 2026–2030. Drawing on historical FDI patterns, comparative evidence from other FTAs, and sectoral dynamics, the paper develops baseline and post-FTA scenarios, estimates employment generation, and evaluates strategic implications for policymakers and investors.

 

Keywords

India–EU FTA, Foreign Direct Investment, Global Value Chains, Manufacturing, Investment Protection, Employment Generation

 

1. Introduction

Foreign Direct Investment (FDI) has been a critical driver of India’s economic transformation, supporting capital formation, technology transfer, export growth, and employment. Among India’s investment partners, the European Union (EU) occupies a pivotal position, accounting for nearly one-sixth of cumulative FDI inflows since liberalization. The signing of the India–EU FTA in January 2026 fundamentally alters the investment landscape by reducing tariff and non-tariff barriers, harmonizing standards, and embedding investment protection disciplines.

This paper treats the India–EU FTA as a strategic economic case and applies a research-oriented framework to answer five core questions:

1. What are the expected annual EU FDI inflows into India between 2026 and 2030?
2. Which EU sectors are most likely to drive post-FTA investment?
3. How will the FTA influence manufacturing-led FDI in India?
4. What role will investment protection clauses play in investor confidence?
5. How many jobs could be generated under alternative FDI scenarios?

 

2. Agreement Overview: India–EU FTA

The India–EU FTA is a comprehensive agreement covering trade in goods, trade in services, investment, intellectual property rights, sustainable development, and regulatory cooperation.

Key Provisions Relevant to FDI

• Tariff Liberalization: Elimination or reduction of tariffs on nearly 97% of EU exports to India, lowering input costs for EU manufacturers investing in India.
• Services and Investment Chapter: Market access commitments in professional services, financial services, engineering, logistics, and digital trade.
• Investment Protection: Clear rules on expropriation, fair and equitable treatment, dispute settlement mechanisms, and transparency.
• Supply Chain Integration: Provisions facilitating rules of origin, customs cooperation, and standards harmonization.

Strategically, the agreement positions India as a preferred China-plus-one destination for EU firms seeking supply chain resilience.

 

3. Historical EU FDI Trends in India

3.1 Aggregate Trends

Between April 2000 and September 2024, cumulative EU FDI into India reached approximately USD 117.4 billion, representing 16.6% of total FDI inflows. More than 6,000 EU companies currently operate in India across manufacturing, services, and technology sectors.

3.2 Country-wise Composition

Major EU contributors include:

• Netherlands: ~USD 55 billion (holding-company investments, technology, consumer goods)
• Germany: ~USD 15.4 billion (engineering, autos, machinery)
• France: ~USD 12 billion (defence, infrastructure, energy)

3.3 Recent Momentum

India recorded a record USD 80.62 billion in FDI inflows in FY2024–25. EU-linked inflows accelerated in FY2023–24, reflecting early anticipation of the FTA and alignment with India’s production-linked incentive (PLI) schemes.

 

4. Methodology and Assumptions for Projections (2026–2030)

The projection framework combines:

• Baseline FDI Growth: Conservative CAGR derived from recent trends (including ~18% growth in H1 FY2025–26).
• EU Share Benchmark: Historical EU share of 16.6% of total FDI.
• FTA Uplift Factor: Additional 20–30% increase in EU FDI, based on empirical evidence from other FTAs (e.g., India–EFTA, EU–Vietnam).
• Global Context: Supply chain diversification, geopolitical realignments, and India’s reform trajectory.

Three scenarios are considered:

• Baseline (No FTA Effect)
• Moderate FTA Impact (20% uplift)
• High FTA Impact (30% uplift)

 

5. Projected EU FDI Inflows: 2026–2030

5.1 Annual Estimates

Year	Baseline Total FDI (USD Bn)	EU Share at 16.6%	Post-FTA EU FDI Range (USD Bn)
2026	85	14.1	18 – 22
2027	90	14.9	20 – 25
2028	95	15.8	22 – 28
2029	100	16.6	24 – 30
2030	105	17.4	25 – 32

5.2 Cumulative Impact

Under moderate-to-high FTA scenarios, cumulative EU FDI inflows could reach USD 100–150 billion during 2026–2030, effectively doubling historical inflows within half a decade.

 

6. Sectoral Drivers of EU FDI Post-FTA

6.1 Manufacturing and Automobiles

EU firms are expected to expand export-oriented manufacturing in autos, auto-components, machinery, and industrial equipment. Tariff elimination and PLI incentives enhance India’s competitiveness as a production base.

6.2 Technology, Digital, and Renewables

Clean energy technologies (solar, wind, green hydrogen), EV ecosystems, semiconductors, and digital services are likely to attract significant EU capital, aligned with EU sustainability mandates.

6.3 Pharmaceuticals and Chemicals

Strong IP frameworks and investment protection clauses encourage high-quality, R&D-intensive FDI, particularly in APIs, specialty chemicals, and biotech.

 

7. Impact on Manufacturing FDI (2026–2030)

The FTA is expected to accelerate India’s transition from market-seeking to efficiency-seeking FDI. Manufacturing FDI could grow at 25–30% annually, increasing its share of total FDI from ~27% to over 35% by 2030. This strengthens India’s integration into EU-centric global value chains.

 

8. Investment Protection Clauses and Investor Confidence

Clear investment protection mechanisms reduce policy risk, lower the cost of capital, and improve long-term planning certainty for EU firms. Empirical studies suggest that robust protection clauses can raise FDI inflows by 10–15% independently, reinforcing the FTA’s investment impact.

 

9. Employment Generation Scenarios

Based on benchmarks from the India–EFTA agreement and past EU investments:

• Low Scenario: 0.7–0.8 million jobs (USD 100B FDI)
• Moderate Scenario: ~1.0 million jobs (USD 120B FDI)
• High Scenario: 1.2–1.4 million jobs (USD 150B FDI)

Employment gains are expected primarily in manufacturing, logistics, construction, and high-skill services.

 

10. Challenges and Risks

• Carbon Border Adjustment Mechanism (CBAM): Potential cost impact of 20–35% on carbon-intensive exports.
• EU FDI Screening (from 2027): Greater scrutiny in strategic and sensitive sectors.
• Geopolitical Uncertainty: US–EU trade frictions and global economic slowdown risks.

Mitigation requires proactive regulatory alignment, green transition support, and continuous investor facilitation by DPIIT and state governments.

 

11. Strategic Implications and Policy Recommendations

For India

• Accelerate standards harmonization and sustainability compliance.
• Strengthen state-level investment facilitation ecosystems.
• Link EU FDI with skilling and MSME integration.

For the EU

• Leverage India as a long-term manufacturing and innovation partner.
• Deepen technology transfer and co-development initiatives.

 

12. Conclusion

The India–EU FTA represents a structural break in bilateral economic relations. By embedding trade liberalization with strong investment protection, the agreement has the potential to catalyze an unprecedented wave of EU FDI into India during 2026–2030. If supported by complementary domestic reforms, the FTA could transform India into a central node in European global value chains while delivering sustained growth, employment, and technological upgrading.

References

·         Department for Promotion of Industry and Internal Trade (DPIIT). (2024). FDI statistics: Factsheet on foreign direct investment. Ministry of Commerce and Industry, Government of India.

·         European Commission. (2023). EU–India trade and investment relations: Facts, figures and priorities. Directorate-General for Trade.

·         European Commission. (2025). Impact assessment of the EU–India Free Trade Agreement. Publications Office of the European Union.

·         International Monetary Fund. (2024). World economic outlook: Navigating global divergence. IMF.

·         Organisation for Economic Co-operation and Development. (2023). FDI in figures: Global investment trends. OECD Publishing.

·         Organisation for Economic Co-operation and Development. (2024). Investment policy reviews: India. OECD Publishing.

·         Reserve Bank of India. (2024). Handbook of statistics on the Indian economy 2023–24. RBI.

·         United Nations Conference on Trade and Development. (2023). World investment report 2023: Investing in sustainable energy for all. UNCTAD.

·         United Nations Conference on Trade and Development. (2024). World investment report 2024: FDI and global value chains. UNCTAD.

·         World Bank. (2024). Global economic prospects. World Bank Group.

·         World Trade Organization. (2023). World trade report 2023: Re-globalization for inclusive growth. WTO.

·         World Trade Organization. (2025). Regional trade agreements database: India–EU Free Trade Agreement. WTO.

·         Ministry of Commerce and Industry. (2026). India–European Union Free Trade Agreement: Official press release and agreement highlights. Government of India.

Additional

·         Dunning, J. H. (1993). Multinational enterprises and the global economy. Addison-Wesley.

·         Helpman, E., Melitz, M., & Yeaple, S. (2004). Export versus FDI. American Economic Review, 94(1), 300–316.

·         Blomström, M., & Kokko, A. (2003). The economics of foreign direct investment incentives. Economic Development and Cultural Change, 51(4), 755–781.

Appendix A: Projected EU Country-wise FDI Inflows into India (2026–2030)

The following table presents a complete, year-wise projection of FDI inflows from all 27 EU member states into India for the period 2026–2030. Estimates are based on historical country shares, sectoral strengths, and a moderate FTA impact scenario (20–25% uplift) with gradual annual scaling.

All values in USD Billion.

EU Country	2026	2027	2028	2029	2030	2026–30 Total
Netherlands	5.0	5.3	5.6	5.9	6.2	28.0
Germany	2.7	2.9	3.1	3.2	3.4	15.3
France	2.2	2.4	2.6	2.7	2.9	12.8
Ireland	1.6	1.7	1.9	2.0	2.1	9.3
Luxembourg	1.3	1.4	1.6	1.7	1.8	7.8
Italy	1.1	1.2	1.3	1.4	1.5	6.5
Spain	0.9	1.0	1.1	1.2	1.3	5.5
Sweden	0.8	0.9	1.0	1.0	1.1	4.8
Belgium	0.7	0.8	0.9	0.9	1.0	4.3
Denmark	0.6	0.7	0.8	0.8	0.9	3.8
Austria	0.5	0.6	0.6	0.7	0.7	3.1
Finland	0.4	0.5	0.5	0.6	0.6	2.6
Poland	0.4	0.5	0.5	0.6	0.6	2.6
Czech Republic	0.35	0.40	0.45	0.45	0.50	2.15
Hungary	0.30	0.35	0.40	0.40	0.45	1.90
Portugal	0.28	0.30	0.32	0.34	0.36	1.60
Greece	0.22	0.25	0.27	0.28	0.30	1.32
Romania	0.22	0.25	0.27	0.28	0.30	1.32
Slovakia	0.18	0.20	0.22	0.24	0.26	1.10
Slovenia	0.16	0.18	0.20	0.22	0.24	1.00
Bulgaria	0.14	0.16	0.18	0.19	0.21	0.88
Croatia	0.11	0.13	0.14	0.16	0.18	0.72
Lithuania	0.11	0.12	0.13	0.14	0.15	0.65
Latvia	0.09	0.10	0.11	0.12	0.13	0.55
Estonia	0.09	0.10	0.11	0.12	0.13	0.55
Malta	0.07	0.08	0.09	-	-	-