In late January, as India celebrated its 77th Republic Day, the European Union's trade delegation, led by Commission President Ursula von der Leyen, concluded a comprehensive Free Trade Agreement with New Delhi. The deal was widely lauded in Indian official discourse, with spokespeople describing it as a breakthrough in market access, investment flows, and regulatory harmonization. EU-India negotiations had reportedly aimed to facilitate higher quotas for concessional steel exports and introduced flexibility in implementing the EU's Carbon Border Adjustment Mechanism (CBAM), the 27-nation bloc's environmental policy tool for fair carbon emissions pricing. Yet beneath the ceremony lies a delicate balance of compromises, obligations and structural dependence.

Just a few days later, India concluded a parallel trade agreement with the U.S. This accord reduced American tariffs on Indian exports from an effective near 50 percent to 18 percent. Domestically, it was welcomed with applause and projections of renewed export growth. Government statements emphasized the benefit to "Made in India" shipments, yet the official metric of an 18-percent duty reduction masks the broader strategic and economic compromises embedded in the deal. The reductions came not in isolation, but alongside commitments that could reshape India's import dependencies, energy sourcing and global negotiating posture.

Implicit and explicit concessions

India's trade with the U.S. is both substantial and asymmetric. In fiscal 2024-25, bilateral trade reached roughly $131.8 billion, with exports at $86.5 billion and imports at $45.3 billion, yielding a surplus exceeding $41 billion. Even under punitive duties imposed in 2025, Indian exports shrank only marginally, buoyed by electronics and pharmaceuticals, which had enjoyed either zero duty or selective exemptions. Electronics shipments rose 122 percent in the first 10 months of 2025, while pharmaceuticals registered sharp growth. Labor-intensive sectors, particularly textiles, gems, jewelry and footwear, had been most affected by the 50 percent tariffs, prompting urgent industry lobbying. The backdrop was thus a mixture of resilience and vulnerability—India possessed inherent export competitiveness, yet faced concentrated sectoral shocks.

Securing a reduction to 18 percent required India to undertake implicit and explicit concessions. Reports indicate commitments to purchase up to $100 billion annually of American goods over five years, covering energy, aircraft parts, technology and agriculture—more than twice the current imports. This is not a simple commercial exchange; it is a structural alignment that increases Indian dependence on American supply chains at a scale unprecedented in recent trade history. The deal thus functions as both a concession and a conditionality mechanism, binding India to commitments that directly influence domestic industrial policy and energy strategy.

The European deal signed in late January compounds the structural pressures. While the EU agreement ostensibly provides avenues for investment, technology transfer and concessional quotas for steel and agricultural exports, it also embeds regulatory compliance obligations, CBAM alignment, and environmental standards that Indian manufacturers must absorb. Reports from officials indicate India pressed for flexibility in meeting CBAM obligations through alternative offset mechanisms, yet compliance remains an operational and financial constraint for domestic firms. Concessional steel export quotas, while appearing beneficial, create the risk of domestic supply-side distortions, potentially raising input costs for Indian manufacturing sectors and constraining policy space for industrial planning.

India's limited bargaining power is stark when contrasted with China. China emphasized mutual respect, credibility and reciprocity in dealings with the U.S. as an indispensable economic interlocutor, signaling leverage derived from scale, integration in global supply chains and domestic industrial heft. India lacks comparable clout.

The domestic economic consequences of these parallel agreements are extensive. On paper, tariff relief may support sectors such as textiles, jewelry, footwear and automobile components. Yet the broader competitive environment complicates the picture. U.S. agricultural exporters, for example, have long sought access to India's market. Reduced Indian tariffs could flood the market with soybeans and other staples, threatening rural incomes and compressing margins for domestic farmers.

The question mark

The combined effect of the EU and U.S. deals introduces a profound strategic tension for India as chair of BRICS in 2026. BRICS, the acronym for an emerging-market cooperative mechanism that initially comprised Brazil, Russia, India, China and South Africa, was envisioned as a platform to counterbalance Western hegemony and project collective leverage. Yet India's concessions, particularly energy sourcing adjustments aligned with American priorities and regulatory harmonization with the EU, risk undermining the group's coherence. Observers in Africa, West Asia and South Asia are attuned to India's posture; a perception that New Delhi prioritizes bilateral appeasement over multilateral solidarity may diminish the credibility of BRICS and other Global South initiatives.

Sector-specific data illustrate the stakes. Leather exports face punitive U.S. tariffs of up to 50 percent; India's natural mentha oil industry has contracted by nearly 60 percent over the past two fiscal years, challenged by synthetic substitutes; onion exports are disrupted by political instability in Bangladesh and global oversupply; urea imports more than doubled to 7.17 million tons in the April-November 2025 period due to domestic production declines; coal imports jumped 28 percent last November, though domestic supply growth is expected to moderate the trend.

The U.S. agreement's narrative, often framed domestically as a triumph, belies a coercive element. Official reporting notes that President Donald Trump warned India of potential escalation of tariffs if it did not reduce Russian oil purchases, demonstrating a transactional power dynamic that places India in a reactive position. In contrast, trade and energy agreements with Russia and Iran allowed India to exercise policy discretion, negotiate currency arrangements and secure energy security.

Both the EU and U.S. deals embed regulatory and/or environmental obligations that constrain domestic policy flexibility, raising questions about the true extent of India's autonomy.

Undermining expectations?

The U.S. deal appears superficially advantageous: tariff reduction promises potential export growth. Yet when contextualized with commitments to import $100 billion of American goods annually, the net economic outcome is ambiguous. Domestic producers must contend with heightened competition, regulatory alignment pressures, and energy sourcing adjustments. For India's Global South partners, these concessions may signal that New Delhi's negotiating philosophy is increasingly transactional, undermining expectations of solidarity in trade and development initiatives.

Moreover, the compressed timeline between the EU and U.S. agreements highlights the strategic pressures faced by Indian negotiators. Within this short period, structural obligations, regulatory compliance and import commitments were effectively locked in, leaving limited room for iterative policy adjustments or domestic stakeholder consultation. The result is a scenario in which short-term headline wins, such as tariff reduction or quota access, obscure medium- and long-term vulnerabilities.

The Indian economy's resilience, while notable, cannot fully neutralize these pressures. Domestic consumption, private sector investment, and targeted fiscal measures offer a buffer, but sectoral imbalances remain pronounced. The Indian states of Gujarat, Maharashtra, and Tamil Nadu alone account for over 60 percent of exports, while agricultural exposure to international price fluctuations and EU-U.S. liberalization policies threatens rural livelihoods. Meanwhile, India's attempts to diversify import sources, including palm oil reductions and cotton imports to exploit zero-duty windows, illustrate a reactive approach to trade shocks rather than proactive leverage generation.

The strategic implications extend into India's leadership of BRICS and wider Global South initiatives. If India prioritizes Western-oriented agreements over multilateral cohesion, it risks weakening its authority and credibility. Initiatives meant to consolidate South-South cooperation may be interpreted as hollow if New Delhi selectively compromises domestic protections to placate external powers. The rhetoric of strategic autonomy, long central to India's foreign and trade policy identity, risks being undermined, becoming a phrase invoked for domestic political legitimacy rather than reflecting operational independence. BR

The author is a Sri Lankan journalist and policy analyst, as well as the founding editor of the Sri Lanka Guardian web portal

Copyedited by Elsbeth van Paridon

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