India-EU relations in a New World economy

India-EU relations in a New World economy

Frugal innovation and new business models for inclusive growth hold the key for a new India-Europe collaboration, argues an expert on Indo-Europe ties. We do not suspect how the global economy has taken a new turn after the great crisis of 2009. Not to redefine the relations between India and Europe in the new global economy in the making is to condemn both partners to misunderstandings and gradually a turn-back. This is true for instance with the obsession of completing at any cost a Free Trade Agreement (FTA) as in the shining days of the 1990s globalisation. As a fact, the large Indian conglomerates have learnt the lessons after a string of M&As in Europe at prices defying all economic logic as in steel (Mittal), automotive (Tata), renewable energy (Suzlon), and even the information technology (IT) sector. The world economy is indeed out of the Chinese super-cycle that began with the opening up policy of Prime Minister Deng Xiaoping. For 30 years, trade has drawn global growth thanks to the addition of almost a billion Chinese blue collar disciplined employees working in giant factories for low wages. Liberalisation of trade but also financial exchange then corresponded to an optimal architecture to reap the benefit of this new North-South division of labour. The capitalists saw their profits increase and consumers around the world got access to very affordable consumer goods. Yet, in return, many countries have seen their industrial sectors shrinking and mass unemployment taking place. Due to these negative outcomes, and given the new demographic and technological constraints in China, that era is over. The new global economic engine is still in the making but it most likely will rely on a “moderate globalisation”, as stated by the economist Dany Rodrick, allowing each country to first exploit its domestic supply and demand (endogenous growth). And this within a global environment marked by the third Industrial Revolution, where automatic processes will increasingly substitute direct work and the imperative of ecological sustainability will be quite unfavourable to long distance trading of goods. India has never completely bought the open liberal model. This may be why it today registers one of the fastest growth in the world thanks to the new Make in India policy, combined with its demographic peak of youth and a thriving domestic demand. On the opposite end, Europe is mired not only into deflation, but it faces also a risk of implosion due to large structural differences and strong divergences as to what should be the new economic model to implement. This is what basically explains the recent Brexit. As always, whenever there is a crisis, opportunities also emerge. On the European side, India clearly offers major business opportunities to offset its stagnant demand. The recent French Rafale jet contract is one good example with the mix of outstanding technology and a guarantee of sovereignty for India in the sensitive area of defence. But there is one area where India and Europe can build a new model of economic relations: frugal innovation for inclusive growth to enable millions of poor people in Europe and hundreds of millions of Indians living below $2 per day to be integrated into the economic realm. These innovations need the best technology available contrary to what many large Indian groups think. But the too-complex model of research and development in Europe does not allow the flexibility and simplicity needed to lead to affordable products and services. On the other hand, India and its so-called jugaad innovations have provided fairly good results as seen in mobile phones, generic healthcare, mini retail pack, low energy and materials consumption. Europe has still to discover the pearls of Made in India innovation and must for that increase its presence on the Indian market. For its part, India could rethink its European strategy from its own expertise and savoir-faire [social skills]. A good example is undoubtedly the success of the French company Renault in Europe as well as in India. It is the same with Saint-Gobain, Lafarge or Capgemini - all examples of French firms learning every day so much from their Indian operations. Conversely, in the car industry for instance, Tata took over the Jaguar Land Rover (JLR) group in 2008 but with low synergies between the Indian market and the European market, the group is still not very active on the segment of small frugal vehicles, including electrical ones. We bet that the revival of an Indian presence in Europe and vice-versa will be based on new business models for both. Dr Jean-Joseph Boillot is an independent expert and co-chairman of the Euro-India group (EIEBG). He is the author of numerous books, including 'The Economy of India, Global Challenge for the Century' in 2008.

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