EU-India ties remain stuck at sub-optimal levels

EU-India ties remain stuck at sub-optimal levels
EU-India ties remain stuck at sub-optimal levels

Brussels will have to walk the extra mile to improve relations with India but it is in the strategic interest of both to do so argues India Inc. Consulting Editor Arnab Mitra. Indian Prime Minister Narendra Modi's visit to Brussels came in the backdrop of the recent terror attack that devastated the seat of the 28-member European Union. Given the shared concerns on the growth of terror networks, it was natural that talks on how to combat this global menace were high on the agenda. It also meant that several other important issues - most notably the long pending but stalled free trade agreement (FTA) - did not get the attention they deserved. In any case, senior Indian interlocutors said, the FTA is unlikely to see the light of day anytime soon. There are several reasons for this. The minutiae of potential stumbling blocks to the FTA are not relevant. But broadly, it points to the growing uncertainty of the EU as a bloc to Indian planners even as New Delhi continues to pursue and maintain robust economic, strategic and political ties with individual member states such as Germany, the UK and France, among a few others. The figures are still impressive, but... For the record, the EU remains India's second largest trading partner, with a total trade volume of €72.5 billion in 2014. It accounts for 20 per cent of India's global trade, but its share has been falling. And India was the EU's ninth largest trade partner in 2014-15. By comparison, the EU's trade with China touched €467 billion in 2013 (with a trade deficit of €137.8 billion). And China is the EU's second largest trade partner. The figures show that there's massive headroom for growth but for the potential to materialise, both sides have to be more flexible and show a willingness to climb down from entrenched positions. Ahead of Modi's visit, both sides issued cautious statements about the summit. “The 13th India-EU Summit aims to deepen the India-EU Strategic Partnership and advance collaboration in priority areas for India's growth and development,” the Indian statement, issued by the ministry of external affairs, said. The EU statement was equally bland. “The summit in Brussels will be an opportunity to re-launch relations and make concrete progress on areas of mutual interest, including trade and investment, energy, climate, water and migration,” it said. Strip away the diplomatese and the widely divergent expectations of the two sides become clear. For trade volumes to pick up significantly, it is important for the FTA, titled Bilateral Trade and Investment Agreement, to be signed. But the talks, which started in 2007 have made little progress over what New Delhi feels are “niggardly concessions and unreasonable demands” by EU. “The Prime Minister is very clear on India's goals: we will not yield any ground till the EU meets our conditions,” said a senior bureaucrat in the commerce ministry. The problem areas India wants the EU to bend on Mode 4 (shorthand for easier movement of professionals across international borders) but Brussels isn't willing to concede any ground on this. India considers this to be of critical importance and lack of movement on this issue remains a major stumbling block. Then, the EU has shown no inclination to declare India “data safe”. This would help India's IT and outsourcing industries by reducing compliance costs but European negotiators have brushed aside Indian demands saying this does not fall under the purview of the FTA and so, should be dealt with separately. The EU, on the other hand, wants lower import duties on automobiles and liquor. But lowering import duties on cars could hit India's burgeoning motor vehicles industry, which is dominated by Japanese and Korean companies, adversely impact the Prime Minister's flagship Make in India initiative and hurt employment in the country. Besides, India has emerged as a major passenger car manufacturing hub, especially for small cars, and exports automobiles to more than 50 countries. This brings in precious foreign exchange and helps keep India's macro-economic fundamentals healthy. Encouraging car imports from Europe by lowering import duties would imperil all these positives.Brussels also wants a more stringent geographical indications regime but India will not make any concessions on this unless its core concerns are met. Other areas of mutual disagreement are in the areas of pharmaceuticals and India's intellectual property regime (IPR). Indian negotiators are categorical that they will not agree to anything that hampers India's competitiveness in the global market for generic drugs, while the European side wants to cap and (India suspects) roll back the capacity of Indian pharma companies to make and market cut price copies of off-patent medicines developed by western drug giants. Brexit complications The planned British referendum on whether it should remain in the EU has made the FTA negotiations more difficult by introducing a completely unexpected geo-political complexity into what is essentially an economic document. The Indian side thinks - and this view has significant salience in political and academic circles in the western world as well - that if the UK leaves the EU, some other countries may also follow suit and this may, over time, lead to the complete unravelling of the 28-nation community. “In such an event, we don't really need the deal,” the senior bureaucrat said, adding that the government is keeping a close watch on developments in London as well as Brussels and some other European capitals. For the record, however, Modi said in a meeting of MEPs: “It (Brexit) is an internal matter for the UK. However as far as India is concerned, we want a strong EU.” Areas of convergence Despite the wide gap in perceptions between New Delhi and Brussels, India continues to enjoy close and warm relations with France and Germany, the two economic engines of Europe, and the UK, its financial centre. India has a decades-old strategic relationship with France and Paris is, arguably, India's oldest ally in the western world. India has deep military and economic ties with France and even now, is locked in negotiations to buy 36 Rafale fighter aircraft for its air force. It should be noted that Airbus, which, at its core, is a French company despite its pan-European moorings, was the first major aircraft manufacturer in the world to start manufacturing and sourcing components for its planes from India. In recent times, Germany has emerged as a key global partner for India, not least because of the great personal chemistry between Chancellor Angela Merkel and Prime Minister Modi. Berlin's support and financial heft is critical for several flagship missions - such as the initiative to generate 100 GW of solar power in India by 2022, Make in India, the Namami Gange programme and the Digital India Mission - undertaken by the Indian government to bring about a radical transformation in this country. The United Kingdom and India have, over the last few years, rediscovered the complementarities that mark their relationship. With India needing an estimated $1 trillion over the next decade to upgrade its creaking infrastructure to world standards, London has emerged as the key source of funds. Besides, cultural familiarity, the presence of a large Indian diaspora and ease of doing business make the UK an important beachhead for Indian businesses looking to globalise operations. Besides these three, India also has close ties with countries such as the Netherlands, Sweden and Italy. The future India's relationship with EU is a textbook case of the whole being smaller than the sum of the parts. India's close ties with Germany, France and the UK belie with distance between New Delhi and Brussels. However, India for its own strategic considerations needs the European Union. As India Inc. CEO Manoj Ladwa has recently written "India's strategic economic and security interests lie in containing China" and therefore it is in New Delhi′s interest to have the EU′s economic clout to contain China′s aggressive dumping policy. He went on to add thatIndia " believes a strong EU is a strategic ally as well as an enabler for the projection of its “soft power”." Both sides could benefit economically, militarily and strategically if the current formal handshakes are replaced with warm hugs - a la New Delhi's clinch with Merkel, Hollande and Cameron. But for that to happen, the bureaucrats in Brussels will have to cede much more ground than they have been willing to so far. New Delhi will also have to walk that extra quarter of a mile. But at the moment, that seems like a bridge too far.

Arnab Mitra is Consulting editor, India Inc. He writes on business and politics.

Related Stories

No stories found.

Podcast

No stories found.

Defence bulletin

No stories found.

The power of the quad

No stories found.

Videos

No stories found.

Women Leaders

No stories found.