Whalesbook
India's European Strategy Takes Shape
The recent diplomatic outreach across Europe marks a key milestone in India's efforts to forge stronger economic and political ties, moving beyond traditional partners. This multi-nation tour, particularly its focus on trade agreements and technology partnerships, signals a deliberate shift in foreign policy in response to changing global politics and the global effort to make supply chains more resilient. The agreements reached are vital steps towards securing India's future in key industrial sectors.
New FTAs Drive Trade and Investment
Prime Minister Modi's engagement across Europe aligns with the recent finalization of the India-EU Free Trade Agreement (FTA) and the operationalization of the India-EFTA Trade and Economic Partnership Agreement (TEPA). The India-EU FTA, concluded on January 27, 2026, after nearly two decades of negotiation, is a major achievement. It covers approximately 2 billion people and a quarter of global GDP, aiming to eliminate duties on nearly 99.5% of Indian exports, which is set to change trade dynamics. This provides India with a reliable trade option amid global trade uncertainty and possible US tariffs. The India-EFTA TEPA, effective October 1, 2025, includes a pledge of $100 billion in Foreign Direct Investment from EFTA nations over 15 years, aiming to generate one million jobs. These agreements collectively show India's proactive plan to reduce reliance on single economic powers and build diverse, resilient partnerships. The EU's goal for strategic autonomy, especially in semiconductors, and to lessen dependence on China, further solidifies this alignment.
Semiconductor Push: Dutch Tech for Gujarat
The visit to the Netherlands highlights key technology partnerships, notably an expected agreement between Tata Electronics and ASML, a leading Dutch chip equipment maker, for the semiconductor plant in Dholera, Gujarat. This collaboration is crucial as India aims to become a global electronics and chip manufacturing hub. Tata Electronics, with Taiwan's PSMC, is establishing an advanced 300mm fabrication plant potentially costing ₹91,000 crore (around $11 billion). The EU, despite its ambitious EU Chips Act, faces challenges in boosting advanced chip production, often relying on external partners for key technologies. ASML Holding NV, a leader in lithography equipment, has a P/E ratio of about 50-57x as of mid-May 2026, well above its 10-year average, reflecting its strong market position but also a high valuation. The Dutch partnership strengthens India's supply chain resilience, fitting the EU's goal to diversify chip sources away from Asia.
Defense, Green Tech, and Trade with Sweden, Norway, Italy
Engagements with Sweden and Norway emphasize cooperation in innovation, AI, defense, and green technology. Sweden's Saab AB, a leading defense contractor, has seen high order backlogs and revenue growth, with an order backlog of SEK 274 billion and sales revenue rising 23.6% in Q1 2026. The company's stock was upgraded to 'buy' in March 2026 on sustained revenue outlook and a 22% CAGR forecast. India's collaboration with Saab, including its manufacturing facility in Haryana, signifies strengthening defense ties. Nordic countries are leaders in renewable energy and sustainable technology, aligning with India's goals for a green transition. India-Norway bilateral trade has grown, with a focus on clean tech, the blue economy, and space cooperation. Italy, the EU's fourth-largest trading partner, represents strong commercial ties with bilateral trade valued at about $13.76 billion in 2024-25. Discussions with Italy focus on manufacturing, automotive, pharmaceuticals, and science & technology, further integrating European industry with India's growth path.
Potential Challenges and Risks
Despite the new trade agreements and technological collaborations, significant challenges and risks remain. The India-EU FTA, while significant, has phased tariff reductions and deferred sensitive issues, so major benefits may take time. The push for domestic semiconductor manufacturing faces stiff competition, high costs, and a complex global supply chain led by established players like TSMC and Intel. ASML's high P/E ratio suggests its valuation anticipates significant future growth, making it vulnerable to slowdowns or demand shifts for advanced lithography equipment. Defense sector growth, while strong for firms like Saab, depends on unpredictable geopolitical events. While India diversifies away from single economic partners, the EU faces internal trade policies like the Carbon Border Adjustment Mechanism, which could create new barriers. Success will depend on political will, navigating complex regulations, and overcoming protectionism that remains prevalent across various nations and industries.
Looking Ahead: Long-Term Strategic Alignment
These diplomatic and economic engagements are setting the stage for long-term strategic alignment. The success of the India-EU FTA and India-EFTA TEPA will depend on successful implementation and ongoing engagement on outstanding issues. India's goal to become a key player in global supply chains for semiconductors and green tech is expected to accelerate, drawing investment and fostering innovation. Focus on joint research, manufacturing, and defense with European partners signals a sustained effort to build partnerships that can withstand global economic and geopolitical uncertainties.