India doesn’t need US as much as Washington thinks, says Nobel laureate Abhijit Banerjee on EU FTA
Telegraph | 29 January 2026
Nobel laureate economist Abhijit Banerjee has described the recently concluded India–EU free trade agreement (FTA) as “a strategic alignment” that sends a signal to Washington amid the high tariffs imposed by the Donald Trump administration that “we don't need the US as much as the US thinks we do”.
At the same time, Banerjee cautioned that the much-publicised pact, often referred to as the “mother of all deals”, would not automatically deliver broad-based gains unless India significantly improves efficiency and logistics.
In an interview with PTI, Banerjee said India was yet to fully grasp the nature of American resistance under President Donald Trump’s leadership, noting that the US had shown “limited interest” in bargaining with India despite repeated public claims of imminent agreements during periods of heightened trade tensions.
“It is certainly a strategic alignment. It sends a signal to the US- from Europe and from India - that we don't need the US as much as the US thinks we do. That can be useful if the idea is to bring the US to the bargaining table,” he said, while expressing scepticism about how much leverage the agreement would actually generate.
Referring to the just-concluded India–EU FTA — a landmark deal aimed at creating a market of two billion people — Banerjee said trade agreements should be seen only as a first step.
“Trade agreements are just a starting point. You still need to have products to sell, and the market needs to want those products,” he said, underlining that competitiveness today extends well beyond tariff reductions.
According to officials, the agreement, which will account for almost a quarter of global GDP, will eliminate tariffs on 99 per cent of Indian exports to the EU and reduce duties on more than 97 per cent of EU exports to India.
Indian sectors such as textiles, apparel, leather goods, handicrafts, footwear and marine products are expected to benefit from the pact, while Europe is likely to gain in areas including wine, automobiles, chemicals and pharmaceuticals.
Banerjee noted that India has been focusing on sectors such as textiles, leather and jewellery, though outcomes may differ significantly across industries.
“We are certainly competitive in jewellery and leather, and maybe less so in textiles, though that depends on which kind of textiles,” he said, adding that competitors such as Vietnam and Bangladesh “are also competitive and they have had some lead over us”.
He argued that the real bottleneck lies in delivery speed and supply-chain efficiency.
“When I talk to retailers in the US, they say Indians are slow. Our transportation system isn't efficient, ports are slow -all of these things matter,” said Banerjee, who was in Kolkata for a discussion on his book “Poor Economics” at the Exide Kolkata Literary Meet.
In the 2024–25 financial year, India’s total trade in goods with the EU stood at around USD 136 billion, comprising exports of about USD 76 billion and imports of USD 60 billion.
Drawing a comparison with China, Banerjee said suppliers there offered “extraordinarily quick turnaround”, often outweighing price advantages elsewhere.
“If one country offers the same price but delivers faster, buyers will go with that country,” he said, adding that India must “get the efficiency to the Chinese level” to fully benefit from trade agreements.
“So, we need to catch up in efficiency. If we reach Chinese levels of efficiency, then I am sure we can translate these agreements into gains. But it's not automatic,” he said.
High tariffs imposed by the US have disrupted global trade flows, with India facing duties of up to 50 per cent, including 25 per cent linked to its purchases of Russian oil.
India has termed the US action “unfair, unjustified and unreasonable”, while reiterating that its energy policy is guided by national interest.
The EU is also confronting the threat of steep US tariffs, and analysts believe the strained relations both India and Europe experienced with the Trump administration added urgency to concluding the FTA.
Banerjee reiterated that India had yet to fully understand Washington’s posture under Trump.
“We haven't understood why Trump has been so anti-India. The US hasn't really been very interested in bargaining with us,” he said, pointing out that claims of near-term agreements were often contradicted.
“US President Trump sometimes claims he spoke to Prime Minister Modi and they will have an agreement, but it's unclear whether that's true, as it is later denied. So, I don't think we fully understand the problem with the US, or how much this affects bargaining,” he said.
The 64-year-old economist also questioned whether Europe could meaningfully substitute for the US market.
“India is a big market, but the US is a gigantic market,” Banerjee said, noting that while Europe excels in luxury goods and machinery, the US remains unmatched in scale.
“Europe produces a lot of luxury goods and machinery, but the US is a gigantic market. India is a big market, but not comparable. So, how much geopolitical advantage this gives us is unclear. Right now, both Europe and India are somewhat on the sidelines, trying to do something and see what happens,” he said.
Asked whether the FTA could help cushion India against global instability, supply-chain disruptions and US tariffs, Banerjee said, “That depends entirely on how much India can take advantage of it”, adding, “Tariffs are just one component of price. Reliability of supply chains, transportation efficiency, and delivery timelines- all of these matter. So again, it's not automatic.”