Taking off, All On Board

At a time when the passage of India's tranformational Goods and Services Tax (GST) is promising to turn all of the country into a common market of $2.2 trillion from April next year, the turmoil in Europe over Brexit offers India scope for closer economic, political and strategic ties with the European Union (EU), the world′s largest common market with a combined GDP of $18 trillion.

The EU is India′s largest trading partner, clocking $126 billion in bilateral trade. There is considerable scope for greater levels of engagement but for this to become reality, several wrinkles have to be ironed out. The two sides have been negotiating a Free Trade Agreement (FTA) for almost a decade but haven′t been able to move forward as neither side has been willing to blink on issues each considers important.

Brussels, for instance, wants New Delhi to bring tariffs on automobiles, chocolates, processed foods and alcohol down to its own levels of 4.3 per cent. This will allow EU companies to flood India with these products and create jobs in their home countries.

But this could well kill the Indian automotive sector, which has emerged as a world leader in small cars and a major creator of jobs. It could also severely disrupt the other industries and cause large scale unemployment in India. Creating jobs is central to Prime Minister Modi's 2019 re-election bid.

There is, thus, a very good reason for the Indian government to stand its ground on this issue. Then, the EU negotiators are unwilling to make any concessions to India on outsourcing knowledge services or allowing Indian professionals easier access to their job market.

By demanding easier market access for its own manufactured goods while at the same time stonewalling India′s demand for reciprocal access to its $45-billion services market, EU bureaucrats are making it politically impossible for the Modi government to agree to the FTA. The recent hoopla over the Canadian FTA will only give further credence to the pessimists on the Indian side.

They should also realise that with Germany and France, the two EU powerhouses, pursuing bilateral ties with India, and many other member countries cutting individual deals to enter the Indian market, there is no real imperative for New Delhi to sign an unequal treaty. Ultimately that's a shame for both.

There is an influential school of thought in India that following Brexit, the time may be ripe for mutually beneficial trade and investment pacts with both the UK and the EU. The hardnosed negotiators sense an opportunity to pit one against the other. The numbers support this hypothesis. India has received about $70 billion in FDI from the bloc, almost a fourth of total FDI received. With the UK, India holds the third largest investor status and trade is about half the total EU-India trade. Though that share has been declining steadily over the years.

But as Indian Commerce Minister Nirmala Sitharaman says, India is keenly aware of the attraction of its massive domestic market and so, will drive a hard bargain before giving access to it. Already, regions like Flanders and Bavaria are reaching out to Indian companies, presenting themselves as alternatives to London as gateways to Europe. Downing Street will be acutely aware of the growing competition, even if they don't accept it, that there are those who see themselves as the new natural home and Europe launch-pad for increasingly international looking Indian business.

Then, the UK will fight back and the idea of a 10 per cent corporation tax by the Conservative government as a counter to a belligerent EU negotiation and painful exits, is imaginative and attractive for Indian business, who will not willingly jump across the channel. The question some are asking already is that if the UK can think of offering such a rate, why not do it sooner rather than later to bolster shaky investor sentiment at home.

This special issue coincides with the Europe India Chamber of Commerce′s annual conference. I take this opportunity to congratulate the EICC management team including Ravi Mehrotra, Shishir Bajoria and the ubiquitous Sunil Prasad in Brussels for flying India's flag high in the EU. Companies such as TCS have made the EU their home and are doing great things to further India's global footprint. I also wish all delegates fruitful deliberations at this very important juncture in the history of the EU and of India. Perhaps, just perhaps, as the UK waves bye-bye to the EU, the EU will be nudged enough to pull out all the stops to take its relationship with India to newer heights