Why the India–EU FTA and India’s Defence Budget Must Be Read Together

On 11 September, at a seminar at the Centre for National Security Studies in Bengaluru, I argued that the India–EU Free Trade Agreement (FTA) is not merely a trade deal but a strategic instrument in a world where access is increasingly weaponised. It sits squarely inside a system where markets, finance, technology and even data routes can be used as tools of leverage rather than neutral channels.

On 16 September, I published a separate article that took a broad, generic look under the hood of the Defence Budget for 2026–27 — a long‑view reading that turned out to be revealing.

The following piece builds on that analysis, but narrows the focus: it reads the same budget through a maritime lens and asks what our allocations say about India’s naval posture in a world where access is increasingly contested. If the FTA is about preserving access in a power‑first trading system, then India’s defence posture must reflect the same logic. This essay, therefore, asks why an ostensibly technical trade agreement belongs in the same frame as questions of power, rules, access, and defence budgets — and what it reveals about the coherence of India’s grand strategy.

Part I - Trumpian Times & Historical Lessons

Trade agreements signal intent. Budgets reveal belief. When those two diverge, strategy does not just wobble; it fractures. What reads on paper like a coherent grand design begins to unravel under the strain of events. In these Trumpian times, the gap between declared openness and defensive economic nationalism is obvious in Washington, Brussels and Beijing alike. But India faces a quieter, more structural divergence of its own: we speak the language of the Indo‑Pacific and “maritime century”, yet our defence rupee still flows primarily to the land frontier.

This is not an abstract quibble about balance sheets. It is a window into how the Republic continues to see itself: a continental power that happens to have a coastline, rather than a maritime state with a vulnerable land border.

The Union Budget for 2026–27, with record overall defence outlays but a relatively modest slice for naval modernisation and maritime domain awareness, underlines the point. To understand why this mismatch between rhetoric and resource allocation is dangerous, we need to step back from this year’s numbers and look at how shifting power and misaligned commitments have destabilised orders in the past.

Thucydides: When Power Shifts, Vulnerability Appears

Thucydides, writing about the Peloponnesian War in the fifth century BCE, was not concerned with trade policy. He was concerned with power. His core insight remains brutally relevant: when power shifts, fear follows. When fear follows, restraint weakens. Athens rose. Sparta grew anxious. The fear of relative loss destabilised an entire order.

What matters for us is not the war. It is the mechanism. Trade redistributes leverage. Technology redistributes leverage. Supply chains redistribute leverage. In such moments, interdependence becomes exposure.

This is the world in which the India–EU FTA has been concluded. A world where access to markets, finance, semiconductors, rare earths, shipping lanes and even data flows can be conditioned or constrained. In such a system, middle powers do not pursue FTAs merely to increase exports. They pursue them to reduce vulnerability.

The FTA, seen this way, is India’s attempt to widen room for manoeuvre in a system where power is again willing to use economic tools without apology.

Grotius: Why We Built Rules to Protect Commerce

Hugo Grotius, the Dutch jurist writing in 1609, did not dream of globalisation. He wrote Mare Liberum because powerful states were attempting to monopolise sea routes. His claim was simple and practical: the seas must remain open, because commerce benefits multiple actors, and monopolisation breeds instability. Modern trade regimes are descendants of that instinct.

But Grotius also understood something many contemporary commentators forget. Rules endure only when powerful actors believe restraint is in their interest. When that belief weakens, the law weakens. We are living through such a period.

Multilateral enforcement is strained. National security exceptions are invoked more easily. Tariffs and sanctions are strategic tools, not last resorts. Export controls on semiconductors and critical technologies are justified in the language of security, not efficiency.

The India–EU FTA must be read in that light — not as idealism, but as an attempt to build a trusted pocket of predictability inside a stressed global system. It is a bounded Grotian response to a Thucydidean world.

But Grotius would also have asked us a further question: if we believe in openness, what are we willing to do to sustain it? That question cannot be answered solely by trade negotiators.

Mahan: Access Survives Only if Backed by Capability

Alfred Thayer Mahan, writing in the late nineteenth century, asked the question Grotius did not fully answer: Who keeps routes open? Mahan’s answer was uncomfortable but realistic: Access survives only when backed by capability. Sea power, for him, was not just warships. It was an ecosystem — merchant fleets, ports, logistics, naval strength, industrial depth, and political will. His deeper insight was that power flows through routes, not territory. Access beats possession.

That logic translates directly to our time.

Today’s sea lanes is not just physical shipping routes, but also digital cables, semiconductor supply chains, energy chokepoints, financial clearing systems, and regulatory standards. Even when transactions travel through software, they depend on cables on the seabed, servers on land, and energy to power them.

If the India–EU FTA is a mechanism for structuring access in such a system, then Mahan forces us to ask a harder question:

Can we protect ships in constricted waters if conflict spills over into the Red Sea, the Gulf of Aden, or the Malacca Strait?

Can we monitor and secure undersea cables that carry financial transactions and data between India, Europe, and East Asia?

Can we sustain presence and logistics in dispersed theatres if crises occur simultaneously rather than sequentially?

If the answer, even partially, is “not yet at the scale of our exposure”, then we are living on strategic credit — and, in practice, on multinational dependence that cuts against our own language of strategic autonomy.

The India–EU FTA as Strategic Infrastructure

When I described the FTA as “strategic infrastructure,” I meant something specific.

Ports are infrastructure.

Undersea cables are infrastructure.

Logistics corridors are infrastructure.

They do not generate immediate revenue. They generate resilience. They allow an economy to absorb shocks without catastrophic disruption. They make rerouting possible. They reduce the power of any single choke‑point or partner.

Trade agreements in a power‑first world function similarly. They embed predictability. They widen options. They reduce single‑point dependency.

The FTA is not just about tariff reduction. It is about creating redundancy in a system where leverage can be applied.

By deepening economic ties with the European Union — a large market with regulatory weight, technological depth, and relative predictability — India reduces the risk of being trapped between rival poles that see trade primarily as an instrument of coercion. It is a form of strategic hedging.

But infrastructure only works if it can be protected.

If energy flows can be disrupted.

If maritime routes can be contested.

If digital cables can be cut or surveilled (used as a point for hidden interception/monitoring of traffic flowing through them).

If choke‑points can be pressured in an extended crisis.

Then trade agreements alone do not secure prosperity. They require capability. Mahan would recognise this immediately.

A container ship forced into convoy under naval escort, a tanker rerouted around a conflict zone, a damaged cable restored by specialised vessels under protection — these are not abstractions. They are the practical conditions under which an FTA continues to function when the world stops being cooperative.

If the India–EU FTA is a strategic bet on access in a weaponised trading system, then the real test lies not in Brussels or New Delhi’s negotiating rooms — but in our own budget documents.

Trade agreements express intent. Defence allocations express conviction. And conviction is measurable. We need to turn to the numbers to see whether intent and investment truly align.

In 2026–27, out of a total capital outlay of ₹2,19,306 crore, the single largest capital head is aviation : aircraft and aero‑engines receive ₹63,734 crore — about 29 per cent of the defence capital budget — funding fighters, transports, helicopters and UAVs. Army modernisation, largely under the broad “other equipment” category, accounts for roughly 36 per cent of capital outlay — around ₹80,000 crore — covering artillery, air defence, drones and networked systems. By contrast, the naval fleet head — which must finance surface combatants, submarines and support vessels — stands at about ₹25,000 crore, or 11 per cent of the capital budget, significantly smaller than the aviation allocation.