"I am particularly confident that we will make headway towards a Free Trade Agreement at this summit, bringing together markets of one and half billion people," said European Commission President José Manuel Barroso in a statement ahead of the meeting.
Bilateral trade between the EU and India was worth €69bn in goods and services last year. The EU accounted for 21% of India's total exports and 14% of India's total imports. The EU has so far been the biggest investor in India, with a cumulative volume of about €20 billion since 2000. But officials note there is still much potential for trade growth.
The agreement "will bring significant economic benefits to both sides and further strengthen our strategic partnership," said European Council President Herman Van Rompuy ahead of the summit.
Negotiations, which started in 2007 and aim to dismantle tariffs on over 90% of traded products, have stumbled amid several obstacles. Officials said they were still stuck on a sustainable development clause that includes in the agreement human rights and environmental standards.
The negotiations are of crucial importance as the free trade agreement is expected to boost the orders of India's apparel exporters to roughly €2.3bn and create 2.5 million jobs in India's textiles and garment export sectors.
Indian officials reportedly said the free trade agreement could increase bilateral trade to as much as €100bn.
Stumbling over intellectual property
Intellectual property rights are another sticking point in that the EU and India are retrenched behind their own positions on the trade-related aspects of intellectual property. The row concerns Indian exports of generic drugs.
Two years ago a shipment of generic drugs from India to Brazil was seized by Dutch customs during transit. The Dutch cited violation of European patent laws.
India's intellectual property regime is in compliance with international trade-related intellectual property rights, but it is not quite as stringent as EU intellectual property laws.
But sources say that Brussels and Delhi have progressed on this front after a meeting in November between EU Trade Commissioner Karel de Gucht and Indian Commerce and Industry Minister Anand Sharma.
An EU official insisted there would be no need to change legislation as the agreement will rely on existing laws.
The summit will also try to launch new political cooperation on security, defence and counter-terrorism.
Recently, India has been pushing to get a permanent seat on the United Nations Security Council, but it has not received any assurances from the EU so far. The issues will probably loom large in the talks, during which leaders will address global threats and challenges like non-proliferation and disarmament.
Some analysts see India as important not only as a country in itself, but also as a counterweight to China. Challenged by China's growing power, Brussels and EU capitals see Delhi as a partner that could balance Beijing's clout.
British Tory MEP Charles Tannock described the strategic partnership between the EU and India as "vital" to Europe's future prosperity and security.
"India is a diplomatic heavyweight and it deserves the EU's strong support," Tannock insisted, describing India as a global economic and diplomatic powerhouse.
"India is a diplomatic heavyweight and it deserves the EU's strong support both in the South Asia regional context and at the UN, where India's case for permanent membership of the Security Council is growing ever stronger," he added.