“The European Union is of great importance to us as India’s largest trading partner accounting for about quarter of our external trade. It is the largest overseas investor in India. Much of its investment is in high technology areas.”     A B Vajpayee at India-EU Business Summit at Copenhegen on October 9, 2002

“The corner stone of the EU-India relationship lies in trade and investment. The EU is India's largest trading and investment partner. Our bilateral trade constitutes a quarter of India's total trade. The EU is also India's biggest partner in development cooperation and the second largest source of foreign direct investment."    Pascal Lamy at Luncheon meeting at CII on March 14, 2003

OVERVIEW

The conglomerate of 15 European nations with more to join the bloc next year, the European Union has emerged as India's single largest trading partner accounting for more than one-fifth share in  both exports and imports of world's fourth largest economy in terms of Purchasing Power Parity. With the accession of another 10 states on May 1, 2004, the EU bloc will become a trade giant in the world. EU-India trade registered an impressive 150 percent growth--from € 9.97 billion in 1991 to € 25.52 bn in 2001. India's major trading partners in EU are UK, accounting for 21.4 percent of the two-way trade, followed by Germany with 20.7 percent, Bel-Lux with 19.3 percent, and Italy with 11.5 percent. Since their first bilateral summit in Lisbon in 2000, the Indo-EU trade relations got added momentum with both sides being  committed to exploit the potential and scope of their economic relations. Poverty alleviation is the guiding principle of the Indo-EU cooperation. "India's overriding challenge for the first decade of the new millennium is to lift between two to three hundred million of its citizens out of poverty. All of India's cooperation partners, including the EC, subscribe to this objective and are seeking to mobilize their particular strength towards helping the Indian government to achieve this goal", underpins EC's country strategy (2002-06) paper on India. To build the "human capital" of the world's largest democracy, the EC would assist India  by "dedicating its resources to (a) making elementary education universal; (b) improving health services in favour of the hitherto deprived population groups; and (c) restoring and safeguarding a healthy environment." The EC would also help Indian authorities create an "enabling  economic environment".

"The corner stone of the EU-India relationship lies in trade and investment. The EU is India's largest trading and investment partner. Our bilateral trade constitutes a quarter of India's total trade. The EU is also India's biggest partner in development cooperation and the second largest source of foreign direct investment", says Mr. Pascal Lamy, the EU Trade Commissioner who was on a visit to  India this March. In an interactive session with India's most powerful industry forum, Confederation of Indian Industries (CII) Mr Lamy pointed out that though over last two decades India's exports to Europe grew by 550 percent--from € 2 bn to € 13 bn in 2001, India accounts for only 1.3 percent of total EU imports of goods whereas China's share is 7.5 percent. In services, India's share is even lower at just 1 percent. Of the EU's global investments, India accounts for a meagre 0.2 percent which Mr. Lamy considers as a "poor return for a country where 17 percent of the world population lives". This shows the vast scope to improve the trade relations. EU's imports in past two decades  grew by 400 percent--from € 2.5 bn in 1980 to € 12.5 bn.

The potential sectors that drew EU investors' attention include telecommunication, insurance, banking and distribution. Further liberalisation of the financial services sectors and effective implementation of telecom regulations are expected to expand the scope of EU investment in India. With the induction of 10 new members on May 1, 2004, the EU would emerge as world's largest trading bloc accounting for 20 percent of world trade and would contribute more than 25 percent of the world's GDP. "This will undoubtedly benefit India through an even larger Single Market with a single set of rules for business and a very open economy with a high standard of rules", points out the EU Trade Commissioner. EU feels that besides addressing the irritants, both the sides should work on a 'positive agenda'. India has raised fingers to a number of trade defence instruments being used by EU but the Trade Commissioner asserts that EU makes a very moderate use of these instruments. In defence he cites that in 2001 only 1.2 percent Indian exports to the EU were subject to trade defence measures. 

On the contrary, EU Trade chief brands India as "world's largest user of trade defence instruments" and raised concern over India's way of handling anti-dumping measures which are in "clear breaches of basic WTO rules. On the other hand, since 2001, 6 cases have been terminated without any imposition of measures and only three new investigations have been initiated concerning India in 2002. About sanitary and phytosanitary related issues being raised  by India, EU stand is that those should not be construed as protectionist measures but it's the question of "addressing the concerns of citizens". The recent issue of pesticide contamination of mineral water in India only strengthens the sensitiveness of the European consumer to safety standards. To help develop international SPS standards in India which would benefit the Indian exporters, the Euro 15 million Trade and Investment Development Program (TIDP) together with India's ministry of Commerce and Industry is being launched together with the Indian federal Commerce and Industry ministry. One of the major concerns and impediments for European industry to enter Indian market is the quantitative restrictions. A case in point is the discriminatory duties and taxes levied on imported spirits which is now as high as up to 580 percent. Besides EU exporters of automobiles, foodstuffs, mineral waters and textiles are facing problems due to a number of technical regulations and SPS requirements.

The EU Trade Commissioner maintains that trade irritants "must not overshadow our agenda and cooperation". EU, India have already signed an agreement on Scientific and Technological Cooperation. EU now wants a negotiated agreements on textiles, customs cooperation and maritime transport as well. EU looks for synergies between India's world class human capital in areas such as IT and biotechnology and EU cutting edge manufacturing technologies. EU wants India to take a joint position with former on the Doha Development Agenda. "..the key to exploiting the full potential of our bilateral relationship is the multilateral track". Mr. Lamy is of the view that while the proposal for zero tariffs is not good for developing countries, the EU is favourably looking at the idea that developing countries need not match each and every proposal on industrial tariffs. EU is of the opinion that on the four Singapore issues India has taken steps 'obviously in the right direction'. These issues include inter alia, investment and competition law. On Trade Related Intellectual Properties (TRIPs) and public health, EU and India maintains the same position.  Agriculture has been identified as most propitious area for joint action between India and EU. EU is in the process of elimination of export subsidies for products of interest to the Third World. There is commonality of interests between these two countries on market access issues. India's interest in Mode-4 relating to movement of natural persons (professionals etc) is known to EU.

At the informal and formal sessions of the WTO's Trade Negotiations Committee (TNC) held at the level of capital-based officials in Geneva on 2nd and 4th April, respectively, India said that regarding negotiations on agriculture it attaches the highest priority to S&D provisions and looks forward to early discussions on such crucial concepts as Sanitary & Phyto-Sanitary (SPS) and Special Safeguard Measures (SSM), as early resolution of these issues would be for India a major component of the results of the negotiations on agriculture, while noting the lack of balance in the progress of negotiations as well as the missed deadline so far. On non-agricultural market access, India is  keenly looking forward to engaging constructively in further discussions in the Negotiating Group on Market Access in the light of the proposal which has already been put forward by India in line with the Doha mandate. On Singapore Issues, India reiterated that further expansion of the agenda would be unproductive.

Textiles is yet another disputable area that has to be resolved between the two countries. According to the EU Trade Commissioner, both the countries are exercising on a bilateral textile agreement under which India and EU could export more to each other's country for a "win win situation". India's textile items exports to EU have gone up. Besides, both India and EU would be working on a customs cooperation agreement and maritime transport agreement. FDI issues and concessions extended to Pakistan are some of the areas of dispute that EU and India have to resolve. During his interaction with the Trade Commissioner, the Indian federal Commerce minister, Arun Jaitley stated that the Indo-EU convergence on the area of market access "is a movement forward in bilateral relations". On lowering of tariffs on industrial goods, Indian government has been undertaking autonomous liberalisation on this matter. "Lowering of tariffs has an impact on governmental revenues. Unless alternative governmental revenue sources are identified, we will be constrained by this issue in our approach to a multilateral agreement", so feels Indian Commerce minister. India's position on Agriculture at the WTO is reflective of its social realities. Nearly 65 percent of India's population depend on agriculture for livelihood.  

On points of common interests, the EU Trade Commissioner tells the Indian industry leaders: "we both need market access in industrial goods; we both agree that there has to be special and differentiated treatment for developing countries, we are both convinced that agriculture is about more than producing food, we are both aware that services is the most dynamic sector in our economies and would benefit from further trade opening."

In terms of FDI investments into India approved in 2002, UK and France rank among the top five investing countries. In terms of actual FDI inflow into India in 2002, UK and Netherlands figure among the top five countries. During this year actual FDI inflow from UK into India stood at US$ 353.9 million against previous year's US$ 221.5 mn. FDI from Netherlands into India during 2002 stood at US$ 155.7 mn compared with US$ 132.3 mn in the previous year. In respect of FDI approved in 2002, UK ranks third with 163 approvals with proposed investment of US$ 375.9 mn against previous year's 162 proposals with projected investment of US$ 1.10 bn. France ranked fifth among the top five investing countries in terms of FDI approved during 2002 with 51 projects having projected investment to the tune of US$ 129.8 mn. Between August 1991 and May 2002, a total of 1810 investment proposals worth US$ 10.67 bn have been approved by the Indian government. During this period number of collaborations for EU technology 1830. Electrical Equipment sector witnessed highest number of technology transfer (496) followed by Industrial Machinery (471) and Chemicals (409). From 1991 to May 2002 EU's share in India's total FDI approvals stood at 25.27 percent. Indian fuel sector (Power & Oil refinery) attracted maximum investment proposals amounting to US$ 4.31 bn followed by the Telecommunication sector's US$ 2.76 bn. 

Major products of Indo-EU bilateral trade include agricultural products, energy, machinery, transport material, chemical products and textiles and clothing.  EU accounts for 22.46 percent of India's total exports and 20.73 percent of India's total imports during 2001-02. Between 1991 and 2001, Indo-EU trade has increased by about 156 percent-from €9.97 Bio to €25.52 Bio. While imports were up 171.53 percent, exports grew by 141.61 percent. It is significant to note that India's exports to EU in 2001 was up 4.64 percent signifying substantial fall from 23.16 percent in the previous year. India's imports from EU too markedly declined by 5.20 percent from 28.60 percent in 2000. In the first 10 months of fiscal 2002-03 India's exports to the EU grew by 15 percent.

Textiles and clothing led India's exports to EU in 2001 with 32.24 percent followed by gem and jewellery (11 percent); leather and leather goods (12.43 percent); chemicals and allied products (7.76 percent); agriculture and allied products (7.68 percent); engineering goods (10.21 percent) and metal and metal products (5.13 percent). On the other hand, gems and jewellery topped the list of India's imports from EU with 34.53 percent during that period followed by  engineering goods (32.39 percent); chemicals and allied products ( 9.01 percent); metal and metal products (6.59 percent); and transport equipment (3.52 percent).

India is having deficit balance of trade with a number of countries. At the end of fiscal 2001-02, it has unfavourable balance of trade (in US$ million) with countries like Belgium,, Germany, UK, Sweden, Finland and Austria. The list was led by Belgium (-1372.38) followed by UK (-402.33), Sweden (-247.44), Germany (-239.75) and Finland (-92.34).

The five-year (2002-06) country strategy for India says that the EC " will share its experience, including in science and technology, to help India unlock the full potential of its economy, induce better returns on its vast economic assets through regulatory reform, privatisation and fiscal reform. It will also seek to facilitate the exchange of talented students, scholars and the collaboration of scientists from both sides. ..As political decentralisation in India is increasingly shifting the dynamics for change from the Center to individual State government, the EC will in the years to come invest resources in a "Partnership for Progress" with initially one Indian State that is committed to reducing poverty by pursuing a social and economic reform agenda. The first "Partnership" could be followed by second "Partnership" in due course."

The 1991 economic reform process has propelled India to emerge as one of the fastest growing economies in the world but in a globalising world where "wealth is increasingly generated  through trade, India's half percentage point in global trade reflects a continued relatively high degree of protection. FDI inflows linger at comparatively low levels, depriving India of extra impulses for growth and competitiveness on world markets", EC says in its India country report. India averaged growth rate at around 6 percent during 1991-2000. Indian economy could grow by 10 percent if fiscal deficits are contained, structural reforms accelerated and public and private investments raised from currently one quarter to at least one third of GDP, the report points out. India's Planning Commission maintains 8.7 percent GDP would double per capita income to close to US$ 1,000 by 2010. The federal government expects 8 percent GDP in 2003 " while a realistic estimate would put it at just above 5 percent.

Share of top investing countries of FDI approvals (2002)

                                        
Share of top investing countries in terms of FDI inflows (2002)

India-EU Trade (1991-2001)
(In € Mio )

India's Balance of Trade with EU Countries
(In US$ million)

EU's Major Exim Products (2001)
(In € Mio)

The EU has launched its 6th Framework Programme for Research (FP6). This first call for proposals has a total volume of over € 5 billion. Though the Programme was conceived for cooperation among European researchers but there is room for partnership with third countries too. The EU welcomes partners from India to join FP6. For the first time, the Framework Programme has funds for international partners in all research areas (a total of € 285 million, in addition to a specific international cooperation programme with € 315 mn). Priority for these funds is for "developing countries" and countries that have a Science and Technology agreement with the EU. India fits in both of these categories. European partners are learning more and more that India has top-level scientists and research institutions, as well as a strong potential of innovative companies. 

The research areas under the first call of FP6 include Information Society Technology; Life Science; Genomics and Biotechnology for Health; Nanotechnologies, intelligent materials and new production processes; Aeronautics and Space; Food Quality and Safety; Sustainable Development (energy, surface transport, global change and ecosystems); Citizens and Governance in a knowledge based society; Policy support and anticipating scientific and technological needs. For India the most interesting opportunities lie in the field of Human resources exchange and in some specific area of scientific research.

Member-Countries

Candidate Countries

Updated on March 29, 2004

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