Key Details
The October 2026 IMF working paper, EU Trade Diversification Through Regional Trade Agreements, compares the provisions of the EU–India agreement with earlier trade agreements and models their possible effects across 170 industries.
Measure | Finding |
|---|---|
Agreement depth | EU–India covers 36 legally enforceable policy areas, extending beyond tariff reductions. Not all are subject to the agreement’s formal dispute-settlement process. |
Bilateral trade | An agreement of comparable depth is associated with an estimated 63% increase in trade between its partners. |
EU-wide exports | In a separate simulation, EU–India raises the EU’s total exports to non-EU markets by 0.93%. |
EU import diversification | The model estimates an improvement of around 2% as the EU draws imports from a wider range of sources. |
EU–India free-trade negotiations concluded in January 2026, but the agreement had not entered into force at the time of the paper. The two trade percentages above answer different questions; neither is a forecast of India’s total exports.
The Agreement’s Rules Matter Alongside Its Tariff Cuts
The paper tests whether deeper trade agreements—those covering more policy areas—are associated with greater trade. The EU–India text includes commitments beyond goods tariffs, including provisions concerning investment, capital movement and intellectual property. With 36 legally enforceable areas, it qualifies as relatively deep under the paper’s measure.
Depth is not the same as enforceability through dispute settlement. The study finds that a smaller share of EU–India’s provisions are subject to that process than in the EU–Mercosur agreement. This distinction matters because counting provisions alone cannot show whether every commitment will work in the same way for businesses.
A Large Bilateral Estimate Translates into a Smaller EU-Wide Change
Using historical trade data, the study estimates that an agreement with EU–India’s depth is associated with 63% more bilateral trade. Its separate economy-wide simulation puts the increase in all extra-EU exports at 0.93%. There is no contradiction: India can become a much more important trading partner without transforming the EU’s entire external trade portfolio.
The estimated response also differs by industry. Across deep EU agreements, agriculture, beverages, food and services show particularly strong trade responses; transport and electronics show more modest ones. These are sector-level relationships estimated from past agreements, not India-specific export forecasts. The paper does not calculate a corresponding figure for India’s total exports, GDP or welfare.
India Offers Europe Another Source of Supply
The study’s second finding concerns where the EU buys from, not only how much it trades. Its simulation suggests that EU–India could improve diversification of EU import sources by about 2%, reducing concentration across suppliers. That gives the agreement significance within Europe’s effort to make supply chains less dependent on a narrow group of countries.
The paper does not suggest India is the EU’s largest diversification opportunity in every sector. A possible agreement with members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership produces substantially larger modelled gains for green and advanced-technology products. India’s estimated contribution is meaningful, but the opportunities will differ across products.
Policy Relevance
For India, the study identifies a trade opportunity, not a guaranteed export gain. The 63% estimate reflects the historical relationship between agreement depth and bilateral trade; whether Indian firms benefit will depend on the agreement taking effect and on their ability to use its market-access provisions.
It also sharpens the question for trade policy. Sector-level readiness matters more than a single headline estimate:firms need to know which products and services gain practical access, what requirements EU buyers impose, and whether smaller exporters can meet them. Tracking uptake after implementation would show whether the agreement broadens India’s export base as well as Europe’s supplier base.
Follow the Full Paper Here: EU Trade Diversification Through Regional Trade Agreements