PARTNERSHIP FOR PROGRESS

For emerging economies like India, EU is one of the most accessible and open markets. Today EU accounts for nearly a quarter of India's exports and imports. The European nation conglomerate is the second largest source of foreign direct investment into India although the country receives a meagre 0.6 percent of EU's global investments.Today India accounts for 1.2 percent of EU imports and 1.4 percent of EU exports. EU's  exports to India too does not match with other comparable markets in the world. The anomaly is being addressed to by the EU.  

  • EU accounts for 22.46% of India’s total exports and 20.73% of total  imports in fiscal 2001-02.

  • Approved FDI from EU has significantly increased from US$ 78 million in 1991 to US$ 2.31 billion in 2001.

  • Actual FDI inflow from EU during this period stood at US$ 4.09 bn.

  • EU investments in India have concentrated on sectors like industrial machinery; transport; electrical  goods & electronics; chemicals & consultancy.

  • New areas of EU investment in India include food processing; horticulture and floriculture trade.

  • EU is India's largest trading partner, accounting for nearly a quarter of the total two-way trade. Economic liberalization in India has led to an impressive growth in the two-way trade, which has increased from €12.17 Bio in 1993 to over €25.52 Bio in 2001. 

  • The share of Indian exports in the EU's overall imports is only 1.3 percent, its impact on India's overall economy is much greater.

FDI Approved ( 1991-2002)
(In Rs million)

COUNTRY 1991-95 1996 1997 1998 1999 2000 2001 2002
France 6881.50 16716.93 7134.12 5135.57 14486.17 2020.74 6798.08 6228.72
Belgium 2048.70 1947.14 2163.27 32887.74 139.96 791.33 1621.04 3495.6
Germany 22128.50 15378.91 21558.14 8537.58 11429.46 5937.64 4138.91 2531.45
Italy 10758.30 1388.76 11949.96 2783.53 17594.76 1073.12 1714.82 705.45
Luxembourg 560.40 93.26 1737.22 6.40 65.55 49.00 7.35 1.75
Netherland 16477.80 10487.14 8705.43 4962.56 6322.14 44.55 36935.71 5523.57
Denmark 2441.60 729.01 1067.15 295.41 761.65 263.41 259.34 549.21
Ireland 2033.20 63.57 228.30 42.70 64.11 167.05 86.42 7.12
UK 37975.10 15245.99 44907.19 32008.44 29630.47 4112.29 49942.45 18043.58
Greece 6.00 0.00 0.00 0.00 14.40 0.00 0.00 0.00
Spain 367.80 91.70 593.25 623.22 1810.35 51.88 1.55 263.01
Portugal 1889.20 0.00 42.30 0.00 7.53 15.22 0.00 2.80
Austria 778.80 828.08 258.94 554.79 326.77 55.83 77.20 176.71
Finland 386.60 539.62 1186.97 495.00 2.92 0.00 174.34 -110.45
Sweden 5699.00 5330.19 1089.99 2154.25 2739.34 1011.83 2363.99 212.56
TOTAL EU 110432.5 68840.3 102654.82 90491.19 85395.58 15593.89 103627.2 37631.08
Source: Federal ministry of Commerce, India


ACTUAL FDI INFLOW (1991-2000)

COUNTRY 1991-95 1996 1997 1998 1999 2000 Total
(In Rs million)
Total
(In € million)
Austria 310.66 157.77 133.68 3.1 64.17 24.84 694.22 17.35
Belgium 11.4 1648.81 116.82 496.87 341.11 1715.95 4330.96 108.27
Denmark 436.77 200.49 66.46 271.63 421.07 247.15 1643.57 41.09
Finland 100.13 200.38 0.07 99.47 0 0 400.05 10
France 961.96 1123.14 1588.24 2624.94 3016.87 4942.6 14257.69 356.44
Germany 4726.48 5656.84 6269.2 1981.54 3335.81 2878.49 24878.36 621.96
Greece 0 0 60.08 15.4 0 9 95.48 2.39
Ireland 85.7 13.44 13.36 26.7 1.5 74.11 166.81 4.17
Italy 698.44 1134.05 4291.33 2582.38 5814.99 193.67 14714.86 367.87
Luxembourg 42.23 19.05 192.53 13.16 1.51 10 278.48 6.96
Netherlands 4693.9 5236.78 3719.89 3591.58 3235.18 1343.62 21820.95 545.52
Portugal 0 0 12.56 7.5 15.22 0 35.28 0.88
Spain 110.72 14.2 25.97 66.93 56.3 0.74 276.86 6.92
Sweden 2087.13 630.55 388.02 701 2289.07 1609.24 7705.01 192.62
UK 1809.37 3323.16 2208.52 3959.95 2570.16 1792.12 15663.6 391.59
Source: Federal ministry of Commerce, India

 

INDIA-EU AGENDA FOR ACTION*

  • Develop further our regular bilateral dialogue on democracy & human rights as an element in Senior Officials and Ministerial Meetings.

  • Intensify co-operation to promote the reconstruction of Afghanistan. 

  • Co-operate to promote democracy, development, fundamental freedoms and the rule of law. 

  • Increase co-operation on counter-terrorism issues including the implementation of UNSCR 1373 requirements and assess the opportunity for co-operation between Europol and Indian agencies. Work towards early conclusion and adoption of the Comprehensive Convention on International Terrorism. 

  • Mobilize the resources needed to promote autonomous civil society interaction and activate the EU India Think Tank Network programme. Prepare a joint report for the next summit on the appropriate follow-up to the recommendations tabled by the EU India Round Table. 

  • Task our experts to consult at regular intervals on the full range of technical issues affecting market access for our businesses. 

  • Invite the Joint Working Group on Information Society to intensify the dialogue on policy and regulatory issues in the run-up to the 2003 World Summit on information Society. 

  • Encourage common approaches on global environmental challenges including climate change and the follow-up to the WSSD through operationalization of the Plan of Implementation. 

  • Build on the momentum of the new Agreement for Scientific and Technological Co-operation and prepare India’s participation in the EC’s new Framework Programme.

  • Launch negotiations for the Agreement on Customs Co-operation with a view to exchanging instruments at the 4th EU India Summit.

  • Continue exploratory talks and bilateral interactions on the feasibility of having an Agreement on Maritime Transport and to submit a progress report to the next meeting of the India-EU Joint Commission.

  • Take steps for the speedy implementation of the’ "EC India Partnership for Progress" in line with the methodology to be agreed.
    Follow-up industry’s recommendations under the first round of the "EU India Joint Initiative for enhancing Trade and Investment" in the fields of Food Processing, Engineering, Telecommunication and Information Technology and examine the recommendations of the Business Summit under the second round of the "Joint Initiative" in four new sectors: Financial Services, Power and Energy, Textiles and Biotechnology.

  • Invite our industry to form a Joint Group, which may select new sectors and identify areas for joint Cooperation for FDI and Trade.

  • Build on the agreed orientations for the EC-India Trade and Investment Development Programme with a view to launching it by mid-2003. Continue to engage their experts at the appropriate levels with a view to speedily resolving their trade issues, among others those in the areas of Sanitary and Phyto-Sanitary rules and Technical Barriers to Trade and seek all opportunities to improve and facilitate their bilateral trade.

  • As agreed at our first summit in 2000, continue an open and constructive dialogue on the negotiations and other work launched at Doha in order to find solutions to our respective concerns, thus contributing to the successful and timely conclusion of the negotiations in line with our commitments at Doha.

* As agreed at the 3rd EU-India Summit at Copenhagen in October, 2002


The third India-EU Summit held at Copenhagen in Demark in October, 2002 has pledged to raise the bilateral trade to € 35 billion in 2005 and to € 50 bn in 2008. The Business Summit has recommended a number of measures to boost up India-EU trade and cooperation
in the areas of Biotechnology, Textiles &  ClothingPower & Energy, Banking, Life Insurance and Investment Vehicles.                                                                

Recommendations of the Third India-EU Business Summit

BIOTECHNOLOGY

In India & EU

  • Support, through a bilateral process, a common understanding of regulatory guidelines for Biotech products and issues so as to propose standardized rules recognized on both sides. (Principles of equivalence, guidelines for accreditation). 

  • To undertake dialogue about best practices and to undertake studies of the gaps in finance in biotechnology start-ups in the EU and India. 

  • Develop linkage between EU and Indian research parks and collaborate in think-tanks or studies, examining the best practices to develop technology parks such as 'Indian Institutes of Biotechnology', with international partnership and with international faculty and student participation.

In India 

In EU

  • Streamline and simplify the approval process to create a truly single-window processing /approval authority under the Department of Biotechnology, but consisting of permanent representatives of other involved agencies (Environment, Agriculture, Health etc.) best-in-class levels:
    (a) Benchmark Indian procedures and systems with those countries where biotech research and commercialization are in an advanced stage.
    (b) Engage industry as well as public bodies in enacting simple, transparent and well delineated rules and procedures, and to draft out improvements to the code of procedures applying to biotech products.
    (c) Exempt small volume consignments (test batches, diagnostic reagents and cultures) from normal customs procedures, and facilitate clearance based on self-declaration and (if absolutely necessary) under blanket indemnity of consignee.

  • Enable public access to information concerning all recombinant and GMO research projects under Citizens' Right to Information, and mandate all companies to periodically report essential non-proprietary details of research projects in a prescribed format and procedure; publish disclosures in official website of DBT and the companies.  

  • Extend fiscal benefits and tax exemption to institutional and corporate investors in biotechnology R&D and infrastructure projects, as well as to research institutions and to all companies having a threshold rating level. 

  • As 100 percent FDI in all streams of biotechnology is applicable, the FIPB layer may be made redundant, and related domains (such as marketing and distribution), given the various operational regulations in each case. 

  • Amend provisions of clinical trials under Schedule Y of Drugs and Cosmetics Act 1940, to permit Phase I (and Phase II) clinical trials in India, even for products, drugs not invented in India. 

  • Initiate debate and opinion gathering from Indian industry, foreign players and civil society on the perception of internationally owned IPR, as a run up to 31.12.2004, with specific reference to patentability of microbial forms, microbiological and biotechnology processes as well as to patentability of API. 

  • Recognize international depositories for GMOs as well as parental germplasm as a sufficient proof of ownership for all proprietary research in seeds and other planting materials being carried out in India.  

  • Expedite the enactment of Bio Diversity Bill or Ordinance and implement both the WTO TRIPS and the CBD agreement in a complimentary legislative view and ratification of the Cartagena Protocol. 

  • Enact enabling resolutions for setting up of colleges and specialized institutions based on a model curriculum for an Integrated Biotechnology and Life Sciences stream at graduate and post graduate levels (using inputs from other countries). 

  • Develop and support clusters, gathering high-tech biotech equipment and expertise, with exempt import duties for five years on all capital goods.

  • Initiate and support a cooperation project involving principal EU and Indian companies or associations (Biotech Vision Committee) to study best practices  in legislation and administrative regulations in biotechnology sector and to identify resource gaps in implementing a world-standard regulatory regime in India.

  • Propose and support technical exchange programs including exposure in EU biotechnology institutions and international training of personnel involved in the approval process, especially personnel in customs and excise departments, state level control bodies and accredited, independent environmental research organizations. 

  • Disseminate details of all EU's international assistance programmes in biotechnology and create a link between EU industry, institutions and Indian public research organizations. 

  • Propose assistance to set up an International Depository in India to facilitate India's accession to the Budapest Treaty. 

  • Partner with Ministry of Science and Technology in setting up and operating model institute (Asia Links Programme).

 

TEXTILES & CLOTHING

In India & EU

  • Jointly work out the content of Marking and Labeling provisions on industrial trade transactions, considering the original intent of these provisions was consumer protection for retail purchases of fabrics for tailoring. 

  • Adopt an agreement for bilateral protection against piracy, for all registered textile designs, as provided for under Article 25.2 of TRIPS Agreement, provide a mechanism for implementation, under joint supervision by Euratex and equivalent Indian associations like CII, ICMF, SASMIRA, etc.  

  • Sign a customs cooperation agreement in imports and exports, to smoothen out issues relating to customs valuation, and fund it under the Trade Development Programme Budget. 

  • EU and Indian Textile Industry (Euratex and CII) to establish a joint working group to review all tariff related issues and customs procedures related issues, and submit a report on  mutually 'workable' tariff reductions and other market access conditions, at the Fourth EU India Summit. 

  • Take steps towards establishing a Bilateral Trade Agreement for removal of non-trade barriers and increased market access besides Outward processing Trade Agreements. 

  •  Create an industry level joint working group to discuss practical steps to increase trade and investment, removal of trade barriers and increase the use of Outward Processing Trade arrangements.

  • Simplify the operational procedures for bonded warehousing schemes. 

  • Allow textile and apparel cluster areas to set up distributive generation model for power. 

  • Create within a short time period, one or more world-class Apparel and Textile Export Parks, with Special Economic Zone (SEZ) status, in selected port cities-Mumbai and Tamil Nadu having export clusters, follow international best-in-class practices in these parks, including customs bonded warehousing, zone based export clearances, etc. 

  • In consultation with domestic industry, take steps to reduce import duties on all textile machinery not made in India for a period of five years to allow cost-reduction in capital investments. 

  • Allow relocation of EU plants especially in made-ups and industrial textiles. 

  • Remove disparity in excise duty structure on the basis of fibre and enterprise size in the textile sector
    (a) Fix uniform rate of excise/duty across all type of yarns, fabrics, knitwear and hosiery and Small Scale Industry (SSI) units in garments.
    (b) Do away with exemptions on ginned cotton, hank yarn, grey fabric. hand processors, knitwear and hosiery and Small Scale Industry (SSI) units in garments.
    (c) Equalise Additional Excise Duty (Textile and Textile Articles) on mmf/yarn and cotton yarn. 

  • Remove Small Scale Industry (SSI) reservation on knitwear and handloom processing segments. 

  • Allot a part of the available textile and apparel quotas to regular, large importers having branch offices or dedicated buying houses in India. 

  • Cap the premium level for all transferable quotas, to bring down transaction costs in apparel exports and improve utilization levels.

  • Disseminate information about India's bonded warehouse schemes and encourage FDI in export-based trading activities.

POWER & ENERGY
  • Enact the Electricity Bill 2001, which provides for several new features like trading, open access, etc. The Bill is already introduced in Parliament.

  • Adopt a National Energy Policy, recognising power as a basic consumer right.

  • Set a deadline for 'cleaning' the Balance Sheet of all SEBs through:
    (a) One-time settlement of outstanding dues payable to generating companies.
    (b) Securitization of debts through issuance of Bonds by SEBs. 

  • Introduce/expedite multi-year instead of annual tariff orders, with a provision for indexing the tariff with fluctuation in fuel prices. Action for reducing technical and commercial losses:
    (a) Enact and enforce strict anti-theft laws in all states; evasion to be declared a criminal offence.
    (b) Distribution companies should be empowered to disconnect supply to non-paying customers without notice, and to prosecute those involved in power theft etc.
    (c) Set a deadline for 100% metering in all states, and link disbursements to SEBs under APDRP, based on achievement of milestones.
    (d) Introduce a model project involving IT as a tool to detect thefts and faults, as a step to reducing human  interface.

  • Support SEBs through technical and financial exchange of programmes and international case studies, etc. for long term tariff models.

BANKING (High Priority)
  • Concept of branch should be fully taken into account for capital and other prudential regulations, especially for banks that are under a consolidated supervision authority in their home country. Possible comfort could be given by head offices undertaking to infuse capital in case of prudential ratios falling below the required level set by RBI. 

  • During possible discussion on the prior item, European banks should be allowed to delay the adjustment to the single borrower limit beyond April 2003 in order to protect customer relationship and easy access of companies in India to needed funds, and to issue local currency subordinated debt as tier 2 capital. 

  • The share of voting rights should be aligned on the share of capital held by any investor as provided by the Company Act. 

  • The minimum capital requirements for 100% foreign-owned NBFCs should be lowered from the very high US$ 50 million to a level more appropriate (in terms of risks and need for long term own funds) for such activities (suggestion: US$ 10 mn). 

  • The concept of 'compulsory' priority lending should be phased out for the entire banking sector. The ultimate objective would be to clearly separate 'economic development functions' from commercial operations by banks'. The former should be taken over dedicated public institutions. During possible policy discussions/adjustment on this item, conditions (e.g. interest rates) should be aligned on market conditions, and foreign banks should be allowed to 'outsource' the bulk of this obligation considering their lack of sufficient network to analyse the risks and find the commercial interest in this priority lending. 

  • Income taxation and other regulations should be homogenised between foreign and domestic institutions, provided the previous Recommendation is dealt with. 

  • Creation and development of a forward interest rate market should be decided in order to improve the liquidity management in banks and reduce maturity-mismatch risks, and quantitative regulation on call money market resources should not apply to banks that can demonstrate a strong asset-liability management and control process.

  • Conditions applying for entry of Indian banks should be fully transparent  and based on 'objective' criteria for prudential control, including India's compliance with BIS 26  'best practice' list of supervisory criteria, country risk and currency convertibility. Possible comfort (in the cases of  branches) could be given by head offices undertaking to infuse capital in case of prudential ratios falling below the required level set by EU member states' prudential authorities, and by a RBI commitment to provide necessary foreign currency in such events.

  • Indian banks should be allowed to market products designed, managed and lodged in India, in the EU markets, provided all regulatory requirements in terms of the nature of the products, disclosure, etc. be met. 

  • Movements of qualified staff  from India to EU should be facilitated, so that Indian banks can benefit from one of their competitive advantages in their European activities. 

BANKING
  • Capital and subordinated loans provided by European head offices to their Indian branches should be protected against currency depreciation, either by allowing to keep them in foreign currency, or by allowing banks to hedge their funds. 

  • Foreign banks should be allowed to raise subordinated debt as tier 2 capital on the domestic Indian market. 

  • Previously useful guidelines, which are not adapted to the current situation, should be updated or abolished, provided that the regulators are satisfied with the internal operation/control processes in banks (e.g. definition of secured lending.) 

  • Provisioning, of doubtful loans should be tax deductible before the write-off/loss is declared in order to encourage higher provisioning and stronger resistance of banks in case of unexpected economic conditions. Symmetrically, cancellation of prior provisions would be reintegrated in the taxable profits. 

  • Overall supervisory functions for multi-activity financial institutions (including financial holdings) should be clarified and strengthened in order to avoid regulatory overlap and  duplication, regulatory arbitrage, and regulatory 'black holes,. The current board of Supervisors could be given more powers and/or an administrative structure to deal with these issues. Occasional and specific difficulties in some financial areas should, not lead to indiscriminate strengthening of regulations. 

  • Administrative/reporting obligations by banks should be simplified and made possible through electronic communications. Clarity of regulatory processes should be enhanced and 'single windows, for regulatory contact should be established. 

  • Legal environment should be revised in order to allow creditors to have a better access to doubtful borrowers' resources. The recent regulatory change  allowing creditor to seize assets is considered a very positive step, but it is felt very important not to limit creditors' right to the assets, but to allow a more direct control on the borrowers' cash flows (e.g. escrow accounts to centralize all revenues). Improved financial information and development of ratings for a much larger segment of corporate borrowers should be encouraged in order to prepare  for Basel-II regulations on capital adequacy. New banking products or services should be automatically approved, provided that the banking institution satisfies a number of overall regulatory criteria (e.g. Islamic banking). The specific nature of banks' activities (notably the possibilities to  outsource a large number of functions at a cost advantage) should be taken in consideration for labour reforms, in order to give more flexibility to banks in terms of operations and cost structure.

Better harmonisation of criteria for accepting a branch of foreign bank should be promoted in the EU Member States, in order to facilitate a multi-country presence by Indian institutions.

LIFE INSURANCE (HIGH PRIORITY)
  • The 26% limit on share participation by foreign insurance companies should be increased, especially since the heaviest capital increases occur in the initial stages of Life insurance development.  

  • The Income Tax Act 1961 and other fiscal legislation should be reviewed to ensure that there is not inconsistency between the laws on taxation of insurance companies and Indian Insurance law as amended by the Insurance Regulatory and Development Authority Act 1999. 

  • Regulation on Pension should be enacted as soon as possible while integrating regulatory issues between various types of financial institutions. 

 
LIFE INSURANCE
  • Regulation on the training of sales force should be based on a level examination and not on a predefined number of training hours. 

  • The extent to which life insurance companies in India are or will be allowed to transfer a part of their asset management functions to specialized Asset Management Companies in order to benefit from outsourced/specialised expertise should be clarified. 

  • The position and scope of activities  of banks as intermediaries in the distribution of insurance products should be considered, given the recent Regulations on corporate brokerage (including possibility of selling products from various providers).  

 
INVESTMENT VEHICLES (HIGH PRIORITY)
  • Venture capital should be made at least at par with Foreign Institutional Investors (FIIs); once registered, they should have the same facility as FIIs; free investments without need of approval from FIPB/RBI. 

  • The tax system applied to the sector and its products has to be made more stable to foster greater predictability in the sector.

 
INVESTMENT VEHICLES
  • All government undertakings should be allowed full choice of AMC when investing their financial resources. 

  • Greater flexibility and freedom for institutional investors including banks, mutual funds and insurance companies to invest in VCF's should be granted provided that this remains within some size limits.  

 


Member-Countries

FRANCE BELGIUM GERMANY ITALY LUXEMBOURG
THE NETHERLANDS DENMARK IRELAND UK GREECE
SPAIN PORTUGAL AUSTRIA FINLAND SWEDEN


Candidate Countries

BULGARIA CZECH REPUBLIC* ESTONIA* CYPRUS* LATVIA*
LITHUANIA* HUNGARY* MALTA* POLAND* ROMANIA
SLOVENIA* SLOVAK REPUBLIC* TURKEY LITHONIA* SLOVENIA*
* To become member-states of EU on May 1, 2004.

Updated on April 24, 2003


HOME | Trade Partners | Overview | Partnership for Progress | Indo-EU Trade (In US$) | Indo-EU Trade (In Rs)