India–EU FTA's €119 billion trade promise: Could Europe's fiscal troubles threaten Indian exporters?

India's free trade agreement (FTA) with the European Union could generate up to €119 billion in additional bilateral trade by 2035. However, widening fiscal deficits in major European economies, including France and Germany, are raising questions about whether Indian exporters can fully capitalise on the agreement's opportunities.

According to CareEdge Global's November 2026 report, Global Economy Update: Turbulence and Transformation, Europe's fiscal outlook is becoming increasingly uneven, with several major economies facing growing budgetary pressures.

France's deficit widens, Germany faces pressure

CareEdge Global reported that France's fiscal deficit widened from 4.7% to 5.4% of GDP, reflecting weaker growth prospects, climate-related shocks and higher debt-servicing costs.

Germany and Italy are expected to record wider fiscal deficits in 2027, while Portugal and Cyprus are projected to maintain surpluses.

Greece presents a contrasting picture, moving from a fiscal deficit of 0.1% of GDP to a surplus of 0.6%, supported by stronger tax revenues and lower expenditure.

These developments could influence government spending, corporate investment and demand across European markets, potentially affecting India's export opportunities.

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What does the €119 billion FTA opportunity mean?

According to a Firstpost report, a May 2026 study by the Confederation of Swedish Enterprise, prepared with the Confederation of Indian Industry (CII), estimated that the India–EU FTA could generate up to €119 billion in additional bilateral trade by 2035 compared with a scenario without the agreement.

Of this, Indian exports to the EU could increase by €48 billion, while European exports to India could rise by €71 billion.

The study also projected a potential €72-billion increase in India's GDP and a €45-billion increase in the EU's GDP by 2035.

These are modelled gains, not guaranteed outcomes.

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Which Indian sectors could benefit?

Indian textiles, apparel, leather, footwear, marine products, engineering goods and automotive components are among the sectors positioned to benefit from improved European market access.

Firstpost reported that the Indian government's January 2026 FTA factsheet identified approximately $33.5 billion worth of labour-intensive exports currently facing European duties ranging from 4% to 26%.

The agreement provides immediate duty elimination for 70.4% of EU tariff lines, covering 90.7% of India's export value.

However, lower tariffs alone may not guarantee higher orders if European demand weakens or businesses postpone investment.

Could fiscal pressures limit export gains?

Widening deficits could prompt some European governments to pursue fiscal consolidation, potentially affecting consumption and investment.

However, higher deficits do not necessarily mean weaker demand. Germany's increased public spending could support infrastructure investment and create opportunities for Indian engineering and industrial suppliers.

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Robin Sukhia, Secretary General and CEO of the Sweden-India Business Council, told Firstpost that European buyers evaluate suppliers on more than tariffs.

"European buyers do not select suppliers on tariffs alone. They need confidence that a supplier can meet technical specifications, maintain consistent quality, deliver on time and sustain production at the required scale," he said.

India's Ambassador to Sweden, Anurag Bhushan, also told Firstpost that Indian MSMEs must meet European technical standards, certification requirements and sustainability norms.

Ultimately, the FTA's success will depend on European demand, Indian exporters' competitiveness and their ability to secure lasting supply-chain relationships. CareEdge's findings highlight potential risks, but do not establish that Europe's fiscal pressures will reduce the agreement's projected benefits.

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