EU-India deal won’t be a substitute to a U.S.-India pact

This report is taken from CNBC’s ‘Inside India’ newsletter this week which brings you timely and insightful news and market commentary on the emerging powerhouse. Subscribe here.

The big story

While temperatures are below freezing point in Davos, geopolitical tensions remain It was on the boil At a time when US President Donald Trump’s quest to control Greenland has thrown transatlantic relations into disarray.

While Europe appears to be standing up to Trump, it is seeking new trade alliances with its focus now on partnering with the world’s fastest growing large economy – India.

European Commission President Ursula von der Leyen said at the World Economic Forum in Davos on Tuesday that the European Union was on the “cusp of a historic trade agreement” with New Delhi. “We choose fair trade rather than tariffs. Partnership rather than isolation. Sustainability rather than exploitation,” she said.

For New Delhi, which has been facing the brunt of punitive US tariffs, this may be a much-needed shot in the arm. Since Trump imposed 50% tariffs on the Asian economy in August last year, it has been looking for alternative markets for its exports and has entered into trade deals with several countries.

“India’s openness to trade deals predates Trump 2.0, but we have seen deals accelerate as countries look to grow together in an uncertain global environment,” said Richard Russo, senior adviser and head of the India and Emerging Asian Economies Division at the Center for Strategic and International Studies.

Over the past few months, India has announced trade agreements with the UK, Oman and New Zealand. The UAE and India on Monday pledged to double trade to more than $200 billion by 2032, with New Delhi also signing a $3 billion liquefied natural gas purchase deal with the Middle Eastern country.

India hopes that the visit of the European Commission President to New Delhi on January 25-27 will end with the announcement of a trade agreement, as the country strives to boost its exports and make up for the shortfall. Decrease in shipments American experts told CNBC that announcing a deal during the visit is very likely.

But they also say that the India-EU trade deal, which some call the “mother of all deals” — a description highlighted by von der Leyen in her speech at the World Economic Forum — will not replace the United States as India’s top export destination.

The deal between India and the US has been in the works for a long time. Earlier this month, US Commerce Secretary Howard Lutnick spoke Podcast He said India could have been the second country to get a deal after the UK, which signed an agreement with Washington in May.

“I made the deal,” Lutnick said. “But Modi had to call President Trump. They weren’t comfortable with that, so Modi didn’t call.” The Indian side described these comments as “inaccurate.”

Following Lutnick’s remarks, Sergio Gore, who took over as US ambassador to India on January 12, said finalizing a trade agreement with a large country like India is “not an easy task,” but the United States is “determined to get there.”

The absence of a deal has increased pressure on the Indian rupee amid fluctuations in exports to the United States exports It fell by 1.8% in December Jumping 22.6% in the previous month. The rupee is trading at 91.56 per dollar to improve Depending on a trade agreement with the United States

While the “mother of all deals” is important to New Delhi, it is unlikely to be large enough to protect the country from the negative effects of US tariffs in the absence of a trade agreement.

“The EU cannot make up for the loss of the US market even after the free trade agreement,” said Ajay Srivastava, founder of the New Delhi-based Global Trade Research Initiative.

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Michael Wan of MUFG Bank said continued outflows from foreign institutional investors and repatriation of FDI into India from private equity players are the reasons why he expects the rupee to underperform in 2026 compared to other countries.

Amesh Shah, Head of India Research at BofA Securities, details his outlook for Indian markets next year, adding that lack of fiscal space for stimulus measures in the Union Budget for FY27 could lead to a sell-off in the market.

Need to know

India and the UAE plan to double bilateral trade. India is planning to He increases Trade with the UAE will reach $200 billion by 2032. State-owned companies in the two countries signed a 10-year liquefied natural gas supply agreement worth $3 billion.

Growth at Reliance Retail slows in December quarter. Reliance Industries is reported to be the third largest vertical of India’s largest conglomerate. Slow down Growth, prompting analysts to cut earnings estimates and lower their target price for the stock, even as they maintained a buy rating on Reliance shares.

India’s exports to China rise in December Exports to China rose 67% in December to $2 billion, in contrast to goods shipped to the US – New Delhi’s largest export market – which fell 1.8% to $6.8 billion.

As of 2.20pm local time, Stylish 50’s The BSE Sensex rose by 0.1%. Both indices have had a bad start to the year, with the Nifty down 3.53% and the Sensex down 3.8% year-to-date.

The yield on 10-year Indian government bonds fell for the third day in a row, and was last at 6.638%.

The rupee also fell to another record low against the dollar on Thursday, reaching Rs 91.64 against the dollar.

– Lim Hui Ji

Coming

January 23: HSBC India Manufacturing and Services Purchasing Managers’ Index (PMI) released by HSBC India

January 25-27: European Council President Antonio Luis Santos da Costa and European Commission President Ursula von der Leyen visit India

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