EU-India: Modi and Expectations of Change

10 Dec, 2014    ·   4768

Tuva Julie Engebrethsen Smith writes about prospects of the EU-India relationship with Narendra Modi leading India's charge

The EU-India bilateral partnership dates back to the 1960s, but it was at the 5th India-EU Summit at The Hague in 2004, that the relationship was upgraded to a ‘Strategic Partnership’, further enhancing ties. It is a relationship built on mutual cooperation anchored within economic agreements.

A recent study by the Europe India Chamber of Commerce (EICC) and the European Business and Technology Centre (EBTC) reveals that EU firms have emerged into becoming the largest inbound investors in India. The report further states that EU enterprises have invested $198 billion over a period of ten years, and have provided 1.5 million Indians with direct employment. 

Since being elected as the 15th Prime Minister of India, Narendra Modi’s eagerness to strengthen regional and international business partnerships, and improve India’s reputation as an economic and political power-state has awakened excitement in the EU. It has sparked fire in the European optimism to improve the EU-India partnership. However, does the Modi-government have the capability or willingness to embark upon existing challenges vis-à-vis the bilateral?

It is certain that the EU wants to contribute to the injection of new life into India’s economy, but one crucial step remains to be implemented for the EU-India partnership to fully flourish: the consensus on the Free Trade Agreement (FTA). Negotiations over the FTA have been ongoing without an outcome since 2007. The former Secretary General of NATO, Javier Solana, argues that concluding the FTA is crucial for a stronger EU-India partnership that, in the longer run, will help easing existing investment and trade disagreements, while simultaneously strengthen EU-India economic and business relations. Consensus on the FTA will benefit India with access to a duty-free European market while offering benefits within production, welfare, and productivity. According to the Observer Research Foundation, India’s welfare gains will temporarily show a 0.3 per cent economic growth, which, in the longer run will increase up to 1.6 per cent.

According to the European Commission´s Trade and Investment Barriers report published earlier this year, hopes are high on foreign direct investment (FDI) limits concerning defence manufacturing, which the Indian government has said it might raise from 26 per cent up to 49 per cent. The report further underlines positive investment improvement as European firms have already applied and gotten their licenses approved in single-brand retail. However, expectations persist among European firms on the approval of multi-brand retail license.

There is optimism in the energy sector as well. According to the EICC and EBTC report, EU enterprises have already spent $118 billion on 2,566 Greenfield projects (projects not constrained by prior work: new factories, airports, etc.). With Modi’s focus on bringing more renewable energy technology into the country, especially on solar and wind energy, an EU-India strategic partnership does not seem short-sighted.

In Europe, renewable energy is creating jobs. Henriette Faergemann, counsellor, Environment, Climate and Energy, EU Delegation to India, speaking of employment generation, argues that green energy is that sector “which decreases resource use and greenhouse gas emissions while creating business, growth and development,” and will surface as economically prosperous. Thus, having 12 million competitive English-speaking Indian youth entering the job market every year and the EU’s innovative energy research, a EU-Indian collaboration in high-tech areas is set to complement each other.

Along the lines of a business and growth-oriented Modi and his approach to opening up the Indian market to foreign trade and investment, Arnaldo Abruzzini, Secretary General, Eurochambres, is optimistic on a final FTA coming into place. It will allow for the growing Indian companies and workforce to discover what the EU has to offer, while simultaneously giving Europe access to a young, prospective market with an opportunity to further bolster its expertise and trade. After all, EU firms are India´s largest investors in FDI.

The European Maritime Security Strategy is optimistic that EU´s pre-existing maritime security cooperation with India will flourish with Modi as the Indian prime minister. On the bilateral level, the Konkan series between the Indian Navy and the Royal Navy of Britain is a success story, and similar exercises will hopefully continue to thrive, as well as other passage exercises between the European and Indian Navies. It is important to encourage capacity-building in smaller countries in the Indian Ocean in order to strengthen regional emergency preparedness and capacity to resist maritime threats, like piracy, illegal arms trafficking and terrorism, among others. Reinforcing the EU-India maritime security partnership is mutually beneficial, as the EU wants to secure its commercial shipping, while India looks for strategic equities and improved maritime power.

As regards political security, as a key strategic goal, India hopes for a more stable and peaceful environment in its neighbourhood, according to Rahul Roy-Chaudhury, senior fellow, International Institute for Strategic Studies.  Modi has only been in office for a few months. However, his recent visits to Asia-Pacific countries, outreach to BRICS countries, and his social calls upon SAARC countries demonstrate dialogue and political willingness within the Modi-government.

Nevertheless, with the “Modi-fications” in play, Europe is given the opportunity to bargain new deals with a new government.