Published: 10:41 PM, 24 July 2026
Europe's search for profitable investment should lead to India
An art piece welcoming trade deal between India and European Union. [Photo by Ashish Vaishnav/SOPA Images/LightRocket via Getty Images]
”Profitability, not politics, is pushing European capital out of China. India is the logical destination”
European companies are running out of profitable places to invest. China, for two decades the default destination, has stopped paying.
Margins there are now being crushed, not only for foreign firms but for domestic ones too, caught in what the Chinese themselves call “involution” – a spiral of over-competition, price wars and overcapacity in which everyone produces more and no one earns more. When even local champions cannot turn a profit, European boards reach the obvious conclusion: the money has to go somewhere else.
On paper, that somewhere is India. It offers what Europe needs and what China increasingly does not – a vast and fast-growing consumer market, rising household demand, and, crucially, a manufacturing base so underdeveloped that there is room to build rather than a saturated field to fight over. Returns on European investment in India already exceed those in the mature US and UK markets, which absorb most EU capital. The EU is, in fact, already India’s largest genuine foreign investor. And yet India ranks only eighth among destinations for European firms, and European manufacturing money in particular has barely moved. The question is why.
The answer lies almost entirely on the Indian side. India’s own numbers tell the story: total FDI inflows fell from a peak of $64 billion in 2020 to $27.5 billion in 2024 – shrinking at exactly the moment capital began leaving China, when they should have surged.
Over the past decade India has made itself harder to invest in, not easier. Between 2016 and 2024 it unilaterally terminated bilateral investment treaties with 77 countries; 22 of them EU member states – including the Netherlands, long the main gateway for European capital. Its 2015 Model BIT stripped out standard protections. The result was measurable: investment from countries whose treaties lapsed fell by roughly 30%, and any capital arriving since is effectively unprotected, exposed to courts where commercial disputes can run for years.
The rest compounds it. India’s average applied tariff sits near 17%, against under 10% in Vietnam – a real deterrent when manufacturing depends on imported components. Quality Control Orders, technical rules that act as non-tariff barriers, have been piling up. In the same vein, India is the lone holdout blocking the WTO’s investment-facilitation agreement.
Zooming into Europe, the free trade agreement signed with India in January, for all its tariff ambition, left out the two considerations that matter most to a manufacturer deciding where to build: enforceable investor protection and access to public procurement. The Investment Protection Agreement was hived off into a separate, still-unfinished track; procurement was simply omitted. The recent EU-EFTA deal is the cautionary tale – a $100 billion investment pledge with no protection behind it, a number rather than a commitment.
So the constraint is not European appetite; it is Indian reluctance. And that is where Europe should apply pressure – on two fronts at once. First, conclude the IPA, and do it pragmatically. Brussels’ preferred Investment Court System is a fine ideal, but even EU members have not ratified it (CETA, agreed in 2016, is still not fully in force). A workable compromise that delivers enforceable legal certainty beats an elegant text that never enters into force. Second, open Indian public procurement, the market European industrial firms most want and the one the FTA pointedly left shut.
Europe has more leverage here than it is using, and the source of that leverage is its own industrial policy. The Industrial Accelerator Act, Brussels’ push to rebuild strategic capacity and cut dependence on China, will increasingly steer public money and procurement toward European suppliers and toward partners inside the WTO Government Procurement Agreement. India is not a party to that agreement. As European industrial policy tilts the field, firms and countries outside the procurement club will find doors quietly closing – and India has the most to lose, precisely as it hopes to become the manufacturing partner Europe is shopping for.
This is the argument New Delhi should hear clearly. India wants European factories, technology and supply-chain integration. Europe wants legal certainty and reciprocal market access. The Industrial Accelerator Act turns that into a concrete trade: accommodate Europe on investor protection and procurement now, and India secures its place in the supply chains Europe is actively rerouting away from China. Refuse, and it watches the diversion flow to Vietnam and eastern Europe instead. Europe should make the linkage explicit rather than leaving it buried in parallel negotiating tracks.
None of this is a complete fix. An investment treaty cannot resolve India’s land-acquisition delays or its patchwork labour codes – those remain India’s to solve. But it addresses the single most binding constraint: the risk premium that today makes Indian manufacturing look uncompetitive despite its size and its returns.
The strategic window is open because profitability, not politics, is pushing European capital out of China. India is the logical destination for it. Whether that capital actually arrives depends on New Delhi giving ground on protection and procurement – and on Brussels using the leverage it already holds to insist that it does.
>> Source: EURACTIV
