India, EU & trade

Prime Minister Narendra Modi began his four-nation trip on Monday in Berlin, Germany, where he met with Chancellor Angela Merkel. Amidst growing uncertainty in the international arena, Modi has an eye on improving trade and bilateral relations with EU nations. Besides Germany, he will visit fellow EU countries Spain and France. Modi will also seek to repair India's drifting partnership with Russia when he meets President Vladimir Putin later this week in the third leg of his four-nation tour. Discussions with France, Germany and Spain will mark the Prime Minister's first major engagement with the European Union, whose relationship with the United States has come under strain in recent months, following Donald Trump's rise to the US presidency, and Russia's growing ambition in the region.

At the recent G-7 summit in Sicily, Italy, there were reports of strong disagreements between the US and at least four other EU nation states on issues of climate change and free trade. Even on the subject of NATO, Trump's inability to endorse Article 5 of the alliance's charter, which states "an attack against one ally is considered as an attack against all," in the face of growing Russian presence has irked US allies.

"The times in which we could rely fully on others — they are somewhat over…We have to know that we must fight for our future on our own, for our destiny as Europeans," Merkel said after the summit. Business-related issues, including breaking the deadlock over a free trade deal between EU and India, besides investments, technology and terror-related security issues are expected to dominate proceedings during Modi's tour of the European Union. At a time when there is considerable uncertainty over America's role in the region and its growing penchant for trade protectionism, major EU economies, led by Germany, are looking at countries like India to defend the free trade-based global economic order. Another significant development ahead of Modi's visit is the EU's discomfort with China's One-Road, One-Belt initiative.

India was the only major economy not to participate at the recent Belt and Road Forum in Beijing and spelt out its objections in no uncertain terms. "Connectivity initiatives must follow principles of financial responsibility to avoid projects that would create unsustainable debt burden for communities; balanced ecological and environmental protection and preservation standards; transparent assessment of project costs; and skill and technology transfer to help long term running and maintenance of the assets created by local communities," said a statement by the Ministry of External Affairs on the OBOR. One can already witness how participating government have found themselves with unviable infrastructure projects laden with debt from Chinese banks. Vindication for New Delhi came in the form of the EU's decision not to endorse this initiative because "it did not include commitments to social and environmental sustainability and transparency," as reported in The Guardian. Speaking to journalists in the national capital last week, the German ambassador to India reiterated this view. Both Germany and India, he said, were in agreement on the fact the OBOR was not an open, inclusive, or transparent initiative. "While connectivity is not a bad thing, trade must follow free trade policies. Our hesitation has been that there have been no consultations," he said. Convergence on this issue has renewed attempts by both nations to rework investment and trade agreements. At the head of this initiative is the India-EU Free Trade Agreement (FTA) on goods and services, and investments.

Fortunately for Prime Minister Modi, he has arrived in Europe armed with significant legislative and administrative measures: the passage of the goods and services tax (GST) bill, abolishment of the Foreign Investment Promotion Board (aimed at expediting decisions on investment proposals) and easing foreign direct investment in the services sector—a measure that seeks to take care of one of the biggest points of disagreement in the India-EU FTA discussions. Another significant development was the Centre's announcement last week it would like to swiftly roll out the new strategic partnership (SP) policy, under which selected Indian private sector companies will partner with global armament companies to jointly manufacture defence equipment under the "Make in India" initiative.

As with most major bilateral deals, the devil lies in the detail. While New Delhi may like to open up India's defence and services sector to European players, it will seek to make sure that any agreement protects the sovereign interests of all parties involved. Earlier in its tenure, the NDA government had cancelled a whole host of bilateral investment deals because it believed that India's sovereign interests weren't secure.

These deals had reportedly given foreign companies shade from Indian courts through international arbitration treaties. Led by Germany, various EU governments and India will hope to find solutions to these concerns during Prime Minister Modi's visit. In the past, the EU has criticised the Indian government for adopting protectionist measures, and in light of OBOR, it will implore India to back bilateral trade and investment deals, which are based on the principles of transparency, openness and inclusivity. How far is New Delhi willing to go to fulfil the EU's wishes? Once the details of these agreements are made public, one can assess how far New Delhi has gone, and what it has got in return. The EU must also walk the extra mile if it really wants India on board. Considering the trouble skilled Indian workers are facing in the US over visa issues, among a whole host of other trade-related concerns arising from protectionist measures adopted by the US and other developed economies, New Delhi does have an incentive to sign onto Merkel's wish for free trade, provided its concerns are addressed.