In an exclusive interaction with Adlin Pertishya Jebaraj, Correspondent at Finance Outlook, Gaurav Makhijani, Managing Partner at MGA, discusses India's increasing importance to international commerce, specifically as supply chains shift towards countries regarded as dependable partners. He highlights that India-EU and India-US trade relationships are positively affecting India's ability to export goods and services, attract foreign investment into the country, and provide economic stability in the long run.  

Gaurav brings over 15 years of post-qualification experience in corporate and international taxation. He has extensive experience in tax litigation and dispute resolution, having represented clients before the Income Tax Appellate Tribunal and briefed Senior Counsels in proceedings before the Authority for Advance Rulings, various High Courts, and the Supreme Court of India on complex tax matters. 

How are India-EU and India-US trade dynamics evolving amid global economic realignments and geopolitical shifts? 

Global trade trajectory is changing very fast. India is playing a much bigger role than before. As one of the fastest-growing large economies, with a strong middle class and rising domestic demand, India has become an important global partner. India is not only focusing on manufacturing and infrastructure but also on the new areas such as artificial intelligence, semiconductors, critical minerals and clean energy. For this, it heavily depends on the US and EU as it continues to be evolving as one of the dominant forces in the global economy. This interdependence drives the current trade dynamics. Countries are indeed redesigning supply chains and looking for reliable and trusted partners and in this context, India is looking to improve its trade ties with the EU and US. 

As regards India-EU trade dynamics, there is a serious visible growing partnership which has now finally resulted in the conclusion of negotiation of the India–EU Free Trade Agreement (FTA) - often described as the “mother of all trade deals”. This agreement goes beyond tariff reductions. It also focuses on easier investment rules, regulatory cooperation, energy transition, sustainability and digital frameworks. India and the EU share a more natural and complementary trade relationship.  

The EU is a key market for Indian goods and services, while India offers skilled talent, strong growth prospects and a large consumer base for European companies. India has undertaken several regulatory reforms in recent years, including simplified laws, better market access, stronger intellectual property protection and fewer non-tariff barriers.  

At the same time, both sides understand each other’s sensitivities, especially in areas such as agriculture. Geopolitics also plays an important role. As the EU looks to reduce over-dependence on China, India has emerged as a preferred alternative. We are likely to see more EU companies setting up or expanding their presence in India. While zero tariffs help market entry, having a local presence is important to truly understand the Indian market and benefit fully from the FTA. 

In respect of India-US trade, both the countries’ relationship has grown strongly over the past decade. The US is now one of India’s largest trading partners, especially in services, IT, technology and manufacturing. The relationship also extends to strategic areas such as defence, technology and supply chain security. That said, the relationship has faced some challenges recently due to higher tariffs and stricter positions on outsourcing and immigration. However, developments in the last 2-3 days suggest some improvement, and there is optimism that trade ties will strengthen again. 

India is focusing on selective and strategic FTAs with partners such as the EU, UK, Australia, New Zealand, Oman, EFTA, and a renewed engagement with the US. The approach is ambitious but carefully aligned with national priorities. 

 
What financial implications do recent trade negotiations have on India’s balance of payments and forex inflows? 

Trade agreements have a direct impact on India’s balance of payments, foreign exchange inflows and overall economic stability. The higher the exports the better the economic indicators. 

Here again, better access to developed markets in the likes, EU, EFTA, UK and Australia, Oman will help increase India’s exports of both goods and services, which strengthens the current account. The US is also a huge market and with the very latest positive development on discussion of India-US trade deal will have a very positive impact on the overall economic growth. 

Services exports, especially IT services, BPO, digital services and Global Capability Centres (GCCs), have been a major source of foreign exchange for India.  On the goods side, sectors such as pharmaceuticals, textiles, auto components and engineering products benefit from tariff reductions and easier market access. Since the EU and the US are developed markets with strong purchasing power, increases in demand here can significantly boost exports. 

It is clearly understood that greater trade integration also leads to higher imports of capital goods, machinery and advanced technology. While this may create short-term pressure on the trade balance, it is positive in the long run as these imports improve productivity and global competitiveness. Trade agreements also encourage foreign direct investment (FDI). Global companies prefer to invest where trade rules are clear and predictable. Stronger FDI inflows bring stable foreign exchange, create jobs and support technology transfer. Regulatory and tax were seen as a challenge of doing business in India. The government has in the past decade introduced a series of reforms that has again helped change the overall image. There is still work that needs to be done in pollution and also in land clearance. 

Overall, deeper trade integration improves investor confidence, strengthens forex reserves and enhances India’s external economic stability. 

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Which sectors stand to gain the most from deeper India–EU and India–US trade integration, and why? 

As the economy grows, all sectors grow. However, there are few sectors that are especially well positioned to benefit from closer trade ties with the EU and the US. 

• Information technology and digital services India’s IT sector is globally recognized for quality and cost efficiency. Both the EU and the US rely heavily on Indian IT services for digital transformation, AI, cybersecurity and cloud solutions. Indian IT companies are also increasingly entering the European SME market, which forms the backbone of the EU economy. Thus, this sector in particular will likely gain from the deeper India-EU and India-US ties. 

• Pharmaceuticals and healthcare: India is a global leader in generic medicines and vaccines. Indian companies already supply a large share of generic drugs to the US. Better regulatory cooperation with the EU and US will further improve market access. European companies are also active in India in diagnostics, research and healthcare technology which means higher FDI inflows in India in this sector. 

• Automotive and auto components: India’s auto component industry meets global quality standards and is cost competitive. European and US manufacturers source components from India, especially in areas such as electric vehicles and aftermarket parts. Many Indian companies already act as contract manufacturers for global auto brands. Better ties, Trade deals mean significant growth in this sector. 
• Textiles remain a key export sector. The India–EU FTA will help Indian exporters compete more effectively with countries like Bangladesh, Vietnam and China, especially in the European market. 

• Renewable energy and green technologies: India’s renewable energy goals align closely with the EU’s Green Deal. Partnerships in solar manufacturing, energy storage and green hydrogen are expected to grow significantly. 

• Biotechnology, life sciences and specialty chemicals also offer strong opportunities. India’s research talent and dedicated chemical parks provide a solid base for export growth to regulated markets.

In what ways can India’s trade financing ecosystem evolve to support MSMEs accessing EU and US markets? 

MSMEs are the backbone of India’s economy. They are quite small and thus accessing developed markets like the EU and US remains challenging for them. There are number of issue they face: 

• Access to affordable finance. Many MSMEs lack collateral and face high borrowing costs. Government schemes such as export credit guarantees and insurance are helpful but need wider reach.  
• Complex documentation and compliance requirements are another major challenge. Simplifying export procedures and paperwork under FTAs will make a big difference for small businesses.  
• Currency fluctuations also pose risks. MSMEs need easier access to hedging tools to manage foreign exchange volatility.  

Overall, trade financing is one of the factors wherein government schemes and financing is already trying to fill-in the gap. To resolve aforementioned challenges, India can also learn from Europe, where chambers of commerce and trade bodies (Advantage Austria / WKO in Austria; DIHK, IHK and AHK in Germany) provide hands-on export support. Strengthening similar practical support systems in India will greatly help MSMEs. 

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What is your long-term vision for India’s trade architecture with the EU and US over the next decade? 

My long-term vision is for trade to move beyond simple transactions and become a true partnership based on trust, innovation and sustainability. India’s trade engagement with the EU and the US is already expanding beyond tariffs to include regulatory cooperation, digital trade, services and investment protection. This creates certainty and encourages long-term investment. Co-operation in sensitive sectors such as defence shows the growing trust. 

The focus should be on building resilient and diversified supply chains, especially in areas such as semiconductors, critical minerals, green technologies and pharmaceuticals. Sustainability will be central to future trade. Cooperation on carbon accounting, renewable energy and environmentally responsible manufacturing will strengthen India’s role in the global green economy. 

India is at an important turning point. With the right domestic reforms, inclusive financing and strong international partnerships, India can significantly increase exports, attract investment and deepen strategic economic ties with the EU and the US.