India's Steel Ambitions: Navigating FTAs in a Global Trade Tightrope

India’s push to secure greater steel access through free trade agreements (FTAs) is shaping up to be one of the most critical economic battlegrounds of 2025. With negotiations intensifying with the EU and the U.S., the stakes are high for both domestic manufacturers and global trade dynamics. The outcome could redefine India’s position in the global steel value chain, but the path is fraught with political, environmental, and economic hurdles.

The EU-India FTA: A Steel-Specific Standoff

The EU-India FTA negotiations, expected to conclude by late 2025, have turned steel into a flashpoint. The EU, India’s largest trading partner, seeks tariff reductions on its exports—particularly automobiles, wine, and whiskey—to Indian markets. In return, India is demanding better access for its pharmaceuticals, textiles, and IT services. However, a major sticking point is the EU’s proposal to impose carbon border taxes on steel, aluminum, and cement. India has vehemently opposed these measures, arguing they would unfairly burden its manufacturers.

The EU’s steel exports to India have surged by 135.6% since 2019, with the bloc now supplying 18.8% of India’s steel imports (as of 2023). This influx has intensified competition for domestic producers like Tata Steel (TATASTEEL.NS) and JSW Steel (JSWSTEEL.NS), which already face rising raw material costs. To protect its own industry, the EU extended its safeguard measures on steel imports through June 2023, maintaining quotas and tariffs. Yet India’s trade ministry remains confident that domestic demand growth, driven by infrastructure projects and urbanization, will absorb the pressure.

U.S. Trade Pressures and the Bilateral Tightrope

Meanwhile, the U.S. has ratcheted up pressure, threatening reciprocal tariffs on $23 billion of Indian exports unless New Delhi agrees to tariff reductions. While steel isn’t explicitly mentioned in the current negotiations, the U.S. is likely to push for concessions in this sector, given its $3.8 billion trade deficit with India in steel products (2023 data). India’s response has been to accelerate FTA talks with the EU and other regions, seeking to diversify its trade partnerships.

The U.S. tariffs, if implemented, could force Indian manufacturers to seek alternative markets or face retaliatory measures. For investors, the volatility underscores the need to monitor U.S.-India trade negotiations closely, as outcomes could reshape supply chains in sectors like automotive and machinery.

Domestic Demand: The Silver Lining

India’s steel consumption is projected to grow at a CAGR of 5-6% through 2025, fueled by infrastructure spending under Prime Minister Narendra Modi’s “Make in India” initiative. The government estimates that domestic demand will hit 200 million tons by 2025, up from 140 million tons in 2023, providing a buffer against trade-related headwinds.

Conclusion: A Risk-Return Equation for Investors

The FTA negotiations present a dual-edged opportunity for investors in India’s steel sector. On one hand, successful EU-India FTA terms could unlock access to European markets for Indian manufacturers, boosting companies like JSW Steel (JSWSTEEL.NS), which has a strong export orientation. The EU’s demand for Indian pharmaceuticals and IT services could also create synergies for steel-dependent industries.

On the other hand, the risks are substantial. If the EU imposes carbon border taxes, Indian steelmakers could face additional costs of up to 10-15% per ton, according to industry estimates. Meanwhile, U.S. tariff threats loom large, though India’s leverage in semiconductors and clean energy—key U.S. priorities—might help soften demands.

For now, investors should focus on companies with diversified export portfolios and exposure to domestic infrastructure projects. Tata Steel, for instance, has been expanding its green steel initiatives, aligning with global sustainability trends. JSW Steel’s investments in electric vehicles and renewables also position it to navigate environmental regulations.

The next 12 months will test India’s ability to balance global trade ambitions with domestic industrial interests. A favorable FTA outcome could propel the sector toward its $200 billion market cap target by 2030, but missteps could leave it stuck in a steel trap.