The EU–India Deal Is Not Enough. India Needs Investment – Now

Key Takeaways

• EU‑India FTA removes tariffs but lacks manufacturing investment clauses
• India’s FDI inflows sit below 1% of GDP, versus Vietnam’s 4.2%
• Terminating 70+ bilateral investment treaties cut India’s FDI by 30%
• 8‑10 million young Indians enter the labour market each year
• Investment protection agreement is the missing piece to unlock European capital

Pulse Analysis

The EU‑India free‑trade agreement, hailed as a milestone after two decades of negotiation, delivers tariff reductions for sectors such as automotive, pharmaceuticals and digital services. While these concessions open market opportunities, the deal’s silence on manufacturing investment creates a strategic blind spot. European firms seeking to diversify away from China view India as a promising production hub, yet they lack the legal certainty required for long‑term, greenfield projects. This omission limits the agreement’s ability to address India’s deeper economic vulnerabilities.

India’s macro‑economic picture underscores the urgency of attracting manufacturing FDI. A depreciating rupee, a widening current‑account deficit driven by soaring oil imports, and an agricultural workforce that still employs over half the population all point to structural fragility. Compared with Vietnam, which draws foreign investment equal to 4.2% of its GDP, India’s inflows are under 1%, reflecting the fallout from terminating more than 70 bilateral investment treaties—a move that cut inflows by roughly a third. With 8‑10 million new entrants to the labour market each year, the country needs high‑skill, high‑pay jobs that only a robust manufacturing sector can provide.

Policy makers on both sides now face a clear agenda: finalize an investment protection agreement that guarantees fair treatment, safeguards against expropriation, and offers a credible dispute‑resolution mechanism. Aligning the FTA with a binding investment framework would give European manufacturers the confidence to commit capital, while delivering foreign‑exchange earnings, job creation and supply‑chain resilience for India. Coupled with clean‑energy incentives, such a partnership could also accelerate India’s decarbonisation goals, turning the EU‑India relationship from a tariff‑focused pact into a comprehensive growth engine.