India-EU ties can attain great heights but Brussels needs to be a little more sensitive towards New Delhi's needs
Even as Britain's “leave” vote in the Brexit referendum continues to grab a disproportionate amount of media attention, the Narendra Modi government and bureaucrats in Brussels are working quietly to realise the full potential of India's relationship with the European Union (EU), which, many analysts believe, is as, if not more important, than New Delhi's ties with London.
Largest trading partner
This single minded attention to a possible upsurge in trade and other ties with Britain has diverted the focus away from the fact that the EU remains India's largest trading partner, accounting for more than 13 per cent of its total external trade. India, on the other hand, is the EU's 10th largest trade partner.
Bilateral trade between the EU and India stands at $126 billion and foreign investments from the bloc add up to a massive $69 billion.
The Narendra Modi government, which has made economic relationships the centerpiece of its foreign policy thrust, is keenly aware of this. Indian officials speak gushingly of how the EU is, despite its recent troubles, the world's single largest economy with the GDP in excess of $18 trillion.
Technology provider
Apart from the US and Japan, the EU is the world's top source of innovations and new technological innovations. India is keen on tapping into this advanced knowledge base to help take its economy and its people to the next level of development.
The EU is a top source for advanced machinery, nuclear reactors and associated technology, military and civil aircraft, optic fibre, optical and other high tech equipment for India, while exports from this country include textiles, organic chemicals, minerals and fuels, tea and other commodities.
In recent times, there has also been a dramatic rise in trade in services, which include computer and IT services, air and sea transport and financial and banking services.
Roadblocks to further cooperation
Many Indian companies have invested heavily in setting up operations in the UK. These were to serve as beach heads for accessing the massive EU market. But Brexit has put those plans in jeopardy, thus, giving a push to the much delayed and much debated India-EU Bilateral Trade and Investment Agreement (BTIA).
Proponents of the treaty say it will help India's exports of pharmaceutical products, industrial goods and agricultural commodities to the EU, which are currently hampered by technical, commercial barriers and sanitary and phytosanitary measures imposed by importing countries.
Indian exports have been on a downtrend over the last year and a half and some experts say the BTIA could help reverse this trend and mitigate to some extent the shock that multilateral trade pacts such as the Trans Pacific Agreement is expected to deal to India's exports,
Hard negotiations
India has been negotiating the BTIA with Brussels since 2007. This agreement, which covers trade and investments in merchandise and services, has remained stuck because of EU's insistent demand that Indian tariff rates, which are at 13.3 per cent on average, be reduced to the EU level of 4.3 per cent. This will definitely lead to an increase in trade but could wipe out several industries in India such as automobiles, alcohol, FMCG and others and increase India's trade deficit.
Many of these industries employ millions of people and a flood of cheap imports from Europe would threaten their livelihoods and lead to political unrest.
No movement on liberalizing trade in services
The BTIA, as it stands today, offers India little incentive in terms of trade in services, where it has a relative advantage. The EU has been reluctant to make strong and binding commitments for the supply of services in Mode 1 and Mode 4.
India is a large market. We have a large middle class with substantial purchasing power. This makes India a very attractive market for anyone negotiating with us.-Nirmala Sitharaman, Indian commerce minister
The General Agreement on Trade in Services under the World Trade Organisation defines Mode 1 as covering a range of outsourcing activities such as business process outsourcing, legal process outsourcing and knowledge process outsourcing.
Europe could offer India a $45-billion opportunity in this sector if it opens it up. This could help create millions of direct white collar jobs and many more indirect blue collar employment opportunities.
Mode 4 deals with the movement of professionals across national borders. Easier norms under Mode 4 will lead to EU giving Indian professionals preferential access to its labour market, thus, boosting India's remittance economy.
But this could lead to a domestic backlash in European countries that are grappling with high levels of unemployment.
So, Brussels is sitting tight on this issue.
EU is also pushing India to tighten its intellectual property regime beyond the parameters mandated by the World Trade Organisation in order to protect its own pharmaceutical monopolies and undercut India emergence as the world leader in cheap generic drugs.
Agreeing to these terms could seriously hamper the Modi government's attempts to ensure cheap and universal healthcare for all Indians. It could also seriously set back efforts at providing universal healthcare to Africans and other poor people worldwide since India supplies a large portion of the cheap life saving drugs needed for this.
Since neither side is willing to blink on this issue, the matter remains in limbo.
India, on the other hand, is keenly aware that the size of its market is its biggest attraction and so will not give in to EU's demands for greater market access without getting reciprocation on the services front.
”India is a large market. We have a large middle class with substantial purchasing power. This makes India a very attractive market for anyone negotiating with us. At the same time, we also have a large number of people who are poor. The government has to keep their interests in mind. Then, there are sectors such as automobiles, auto components and pharmaceuticals, to name only three, in which India is globally competitive and in which our companies have earned global acclaim,” India's Commerce Minister Nirmala Sitharaman had told India Inc in an exclusive interview.
”When we negotiate trade deals, we have ensure that our partner country gives us as much access in these and other sectors such as services as we give them. There has to be a spirit of give and take when working out the details and we have to make sure we get a good deal that protects our national interest,” she had said.
Some analysts feel India can pursue one-on-one ties with individual countries within EU even as negotiations with Brussels drag on.
Within the bloc, Germany is India's largest trade partner and also the largest investor into India. Then, France is an important strategic and economic partner and one of the top sources of defence equipment for this country.
This, to some extent, explains the inordinate delay in firming up the pact.
Renewed efforts at sealing pact
Following a recent summit level meeting between India and the EU, a statement released officially said: “The leaders welcomed that both sides have re-engaged in discussions with a view to considering how to further the EU-India Broad-based Trade and Investment Agreement (BTIA) negotiations.... Both sides remain engaged to discuss how to deepen bilateral trade and investment relations in order to fully reap the benefits, including through negotiations on the BTIA”.
Despite the stalled BTIA pact, India and the EU are taking forward their cooperation on a range of issues.
The EU-India Agenda for Action-2020, endorsed by Prime Minister Narendra Modi and the presidents of the European Council and European Commission, envisioned a firm partnership on climate change, foreign policy, counter terrorism, disarmament, strategic ties, transport and space cooperation.
This indicates a clear effort to move away from the current stalemate. But will they
With post-Brexit ties with Great Britain still hogging a disproportionate amount of attention and with the German, French and other bilateral relationships jogging along, there is actually little incentive for New Delhi to make the concessions Brussels is demanding.
Then, following India's new strategic clinch with the US, there is little additional benefit that EU can offer India on the geo-strategic front.
So, experts expect India-EU ties to remain stuck for a while in warm rhetoric but to achieve their full potential, it needs a little more flexibility from Brussels.
