India - EU relations

CONTEXT:

• Over 60 years of friendship, both India and the EU have maintained robust strategic relation, however, in some critical areas, there is still room for enhanced cooperation.

HISTORY:

• First country to extend diplomatic relations:
  • India was one of the first countries and the first Asian country to extend diplomatic relations with the European Economic Community in 1962
  • Since then, India–EU relations have progressively developed, where it evolved into a strategic partnership in the 21st century
• Development partnerships:
  • Since the beginning of diplomatic relations in 1962, India and the EU have worked closely on development partnership as the EEC funded several developmental projects in India which was slowly transforming into a modern society.
  • The EEC extended its cooperation in India’s Operation Flood, which was launched in 1970, and changed India’s dairy architecture also commonly known as the ‘White Revolution’.
  • The EEC donated skimmed milk powder and butter oil through the World Food Program (WFP) which effectively transformed India from a milk deficient nation into the world’s largest milk producer over three phases.
• Increased bilateral trade:
  • In the 1960s, India’s largest trade partners in the European community were the United Kingdom and West Germany as India–EU trade incrementally increased from USD 1.638 billion in the 1960s and 1970s to USD 5.701 billion in 1980.
  • As of 2021, the bilateral trade between India and the EU is valued at Euro 65.30 billion with greater market penetration across both regions in comparison to their relations in the twentieth century.
• Post-LPG reforms in India:
  • The trade relations between India and the EU began blossoming in the 1990s as the Indian economy underwent liberalisation after seeking support from the International Monetary Fund (IMF), which included a comprehensive set of reforms and reforming of capital markets in India.
  • Similarly, the EEC gave way to the establishment of the European Union, when the Maastricht Treaty was signed in 1992 that laid the foundation for the EU provisions such as shared European citizenship, the introduction of a single currency, and the development of Common Foreign and Security Policy (CFSP).
  • Since the 1990s, India–EU relations catapulted as trade relations grew, political engagement increased significantly but most importantly, people–to–people relations grew exponentially between the two as thousands of Indian students chose Europe as a learning hub.
  • A cooperation agreement signed in 1994 took the bilateral relationship beyond trade and economic cooperation.
  • At the 5th India-EU Summit held at The Hague in 2004, the relationship was upgraded to a ‘Strategic Partnership’.
  • India and the EU have been working on a Broad-based Trade and Investment Agreement (BTIA) since 2007. However, talks over it have been suspended since 2013.

WHY EU IMPORTANT TO INDIA?

• Aids for connectivity infrastructure:
  • The EU’s Global Gateway initiative offers Brussels an opportunity to support infrastructure development around the world as the European Commission has earmarked Euro 300 billion between 2021–2027 for connectivity projects.
  • The Gateway initiative is Europe’s method of building resilient connections with the world where the EU attempts at promoting linkages over debt traps.
• To tackle emerging geo-political challenges:
  • India and the EU are two of the largest democracies in the world sharing common values and principles and with the rise of multipolarity, both sides can elevate their strategic partnership to realise the true potential between New Delhi and Brussels to find solutions for impending geopolitical challenges.
  • For ex: India with support of EU could pressurise Russia to withdraw its aggression on Ukraine.
• Building a sustainable future:
  • Green investment and green infrastructure building are the need of the hour, and the EU can be an important partner to India as Brussels can further its energy relations with India by providing resources, technical know-how, and capabilities in the renewable energy sector.
• Climate action:
  • Both regions have underlined their commitment to the Paris climate accord and the UNFCCC despite USA’s withdrawal.
  • They have also committed towards promoting clean energy, resource efficiency and circular economy.
• Multipolar global governance:
  • Faced with increased instability in world affairs, the EU and India have remained staunch defenders of a rules-based global order centered on effective multilateral institutions such as UN and WTO.
• To counter Chinese aggression:
  • EU has begun raising its voice against China’s aggressive actions on the Line of Actual Control with India and its assertive approach to the security and stability of digital networks.
  • This supports India’s stand towards China in recent times.
• Post-pandemic actions:
  • India and EU have emphasized the importance of strengthening preparedness and response capacities, of sharing information and of improving international response, drawing on lessons learned from the current global responses.
• Labour force:
  • There is a skills shortage in the EU labour market and India offers a growing talent-pool of highly-skilled workers.
  • Hence, cooperation in movement of human capital can benefit both parties.
• Iran’s future:
  • The European Union had reaffirmed their commitments to the Joint Comprehensive Plan of Action (JCPOA).
  • This surety is vital for India to ensure that her interests with Iran are safeguarded even if the USA imposes further sanctions.
• New and emerging threats:
  • Both parties are victims of emerging threats such as terrorism, piracy and cyber-attacks and seek active cooperation towards combating them.

WHY INDIA IMPORTANT TO EU?

• Role of India in EU’s Indo–Pacific Strategy:
  • The EU through its Indo–Pacific Strategy aims to promote rules-based regional security architecture in the region by aligning with like-minded allies and India lies at the centrality of the EU’s grand strategy.
  • The region is the new epicentre for geopolitics as it homes more than 60 percent of the world’s population and accounts for more than two-thirds of the global economic output.
  • For India, the region has been of prime importance for centuries as it perceives the region as a free, inclusive region that embraces all in a common pursuit of progress.
  • Maritime cooperation between India and the EU has emerged as a critical area of cooperation as both have stressed upholding international law in the high seas and adherence to the UNCLOS.
• Strategic interests over Afghan:
  • The re-emergence of Taliban threatens the strategic interest of both parties over Afghanistan.
  • Ex: The oppressive regime could increase radicalism and the flow of refugees to Europe, and also pose a threat to India national security.

COOPERATION

• Bilateral trade:
  • India is EU’s 10th largest trading partner, and the EU is India’s third-largest trading partner
  • India's exports to the EU also grew steadily from Euro 22.6 billion in 2006 to Euro 45.82 billion in 2018, with the largest sectors being engineering goods, pharmaceuticals, gems and jewellery etc.
  • Trade in services has also tripled between 2005 and 2016.
  • France and Germany collectively represent the major part of EU-India trade
• Investment:
  • EU is the biggest foreign investor in India, with 75.8 billion Euro in 2019. (22% of total FDI inflows).
  • Some 6,000 European companies are present in India, providing directly 1.7 million jobs and indirectly 5 million jobs in a broad range of sectors.

• Political:
  • India and the EU interact regularly through annual summits and meetings at ministerial and diplomatic levels.
• Strategic cooperation
  • To a large extend, strategic cooperation is limited. However, Summits, ministerial-level meetings and regular foreign policy and security consultations are held. They deal on matters such as counterterrorism, counter-piracy, cyber-security, and non-proliferation/disarmament.
  • India–EU Partnership: A Roadmap to 2025:
    • In 2020, at the 15th EU–India Summit, the two sides also adopted “India–EU Partnership: A Roadmap to 2025” to further strengthen the India–EU Strategic partnership.
    • The roadmap highlights cooperation in five critical domains:
      • Foreign Policy and Security Cooperation; Trade and Economy; Sustainable Modernisation Partnership; Global governance; and people-to-people relations.
  • Indo–Pacific Strategy:
    • Similarly, before the 16th India–EU summit in 2021, the EU announced its Indo–Pacific Strategy which highlights Europe’s interest in the region coupled with its ambitions to counter its systemic rival.
• Security
  • Maritime security:
    • Maritime security has emerged as a critical area of cooperation between India and the European Union.
    • The Joint Action Plan adopted in 2005, highlighted and emphasized on maritime cooperation.
    • In the past few decades, both India and the EU have stressed on the idea of freedom of navigation, maritime piracy, and adherence to United Nation Conventions on the Law of the Sea (UNCLOS) and the development of the blue economy and maritime infrastructure.
    • Both have identified the Indo-Pacific as the new avenue for maritime cooperation.
    • India and the EU hosted the first maritime security dialogue in January 2021 where both discussed cooperation in maritime domain awareness, capacity-building, and joint naval activities.
  • EU-India Cyber Security Dialogue
    • It has been set up to facilitate exchange of best practice on addressing cybercrime and strengthening cyber security and resilience.
• Energy:
  • India and the EU set up an Energy Panel in 2005 to enhance cooperation in the critical sector of energy and energy security
• Space cooperation
  • India’s ISRO and the EU’s European space agency have cooperated in various space activities.
  • In 1978, first Agreement between European Space Agency (ESA) and the Indian Space Research Organisation (ISRO) was signed
  • In 1981, Europe’s Ariane 3 rocket launched India’s first geostationary satellite APPLE.
  • An ISRO-ESA Arrangement concerning network and operations cross-support which will enable use of ground station to support each other’s spacecraft missions, was signed recently.
  • ISRO has contributed towards Galileo- global navigation satellite system (GNSS).
• Environment and climate change:
  • Climate change:
    • In the realm of climate change, India-EU relations have witnessed a commitment of international agreements such as the Kyoto Protocol and the Paris agreement.
    • They have been collectively pushing for a comprehensive framework for global governance on climate change.
  • Clean energy:
    • EU - India Clean Energy and Climate Partnership to promote access to and disseminate clean energy and climate friendly technologies and encourage research and development
  • Clean transport:
    • EU is supporting the Mobilize Your City (MYC) programme in India currently in three pilot cities to reduce their urban transport-related Green House Gas (GHG) emissions.
  • Other partnerships:
    • The EU has also invested in numerous programmes such as India-EU water partnership, solar park programme, and Facilitating Offshore Wind in India (FOWIND).
    • EU is a close partner in initiatives like the Clean Ganga initiative and International Solar alliance (ISA).
    • Both parties have adopted a joint declaration on enhancing resource efficiency and moving towards a more circular economic model in 2017.
• Research and innovation:
  • Horizon 2020:
    • India is participating in research and innovation funding program 'Horizon 2020'. Through this program, individual scientists can receive grants from the European Research Council.
  • ITER project:
    • India also partners with EU in International Thermonuclear Experimental Reactor (ITER project) which aims demonstrate the scientific viability of fusion as a future sustainable energy source.
• Socio-cultural:
  • Both parties have signed a Joint Declaration on Culture in 2010, committing to preserve and promote cultural diversity, as well as promote genuine intercultural dialogue.
  • Every year, almost 50,000 students from India travel to 4,000 European universities.
  • India and the EU organize Festivals of culture (e.g. Europalia-India festival), exchanges on heritage such as yoga & Ayurveda etc.
  • Both signed Horizontal Agreement on Civil Aviation in 2018 to boost bilateral travel and tourism.

ISSUES

• Failed attempt on trade and investment deal:
  • Negotiations for a broad-based Bilateral Trade and Investment Agreement (BTIA) was held between 2007–2013 but negotiations were suspended after multiple impasses on issues about India’s trade regime and hesitancy in engaging in trade agreements accompanied with other technical, legislative, and administrative trade barriers.
• Chinese factor:
  • For both India and the EU, China forefronts a major challenge that requires specific attention.
  • The EU is divided over its China policy with the increased disjunction between its member states on policies on China.
  • The growing disjuncture remains a key problem for the EU in its policymaking and decision-making process, and with greater geopolitical challenges surrounding Europe, such divergence could be fatal for Brussels.
  • Though there have been increasing criticisms of China, noticeably over the coronavirus pandemic, the EU is not ready to really upset China as it is an important partner of the EU and carries much more weight than India across all aspects of its relationship with the EU.
• Low bilateral trade:
  • India accounts for only 1.9% of EU total trade in goods in 2019, well behind China (13.8%).
• Criticism over Political matters:
  • The abrogation of Article 370 and the subsequent imposition of a communications blackout in Jammu and Kashmir, the passage of the Citizenship Amendment Act (2019), and the institution of the National Register for Citizens (NRC) have garnered significant criticism from the European Union.
• AUKUS partnership:
  • AUKUS is a new strategic defence alliance between Australia, the UK and US, initially to build a class of nuclear-propelled submarines, but also to work together in the Indo-Pacific region. While it is seen as an effort to counter China, it also undermines India’s role in the Indian Ocean region.
• India’s perception of EU:
  • It views EU primarily as a trade bloc, preferring bilateral partnerships with Member States for all political and security matters.
  • This is evident from lack of substantive agreements on matters such as regional security and connectivity.
• Impact of GDPR:
  • Europe is a significant market for Indian service sector companies.
  • But the high compliance cost and lack of data secure status for India would be a challenge for firms and startups to become GDPR compliant.
• Ease of doing business:
  • European investors have repeatedly complained about India’s Intellectual Property regime, fragmented labour legislations and complex taxation regimes.
  • These factors, coupled with the lack of investor protection measures, has increased the risks of investing in India. 
• Protectionist policies:
  • India had, in recent times, exhibited protectionist streak–raising tariffs, speaking of self-reliance and reducing procurement opportunities for foreign firms. This has not gone well with European investors.
• Relationship with Russia:
  • India has a longstanding relationship with Russia.
  • However, the EU has been isolating Russia its aggression on Ukraine.
  • India’s abstention from voting on UN General Assembly’s resolution for Russia’s aggression on Ukraine >> was not well received by western countries including EU.
  • It will be a diplomatic challenge for India to keep close relations with both EU and Russia.
• Brexit:
  • The impact that Brexit can have on European Union and India is not clear yet.
  • While trade relations between India and the EU have been strong historically, Brexit may adversely affect this status quo.

BILATERAL TRADE AND INVESTMENT AGREEMENT (BTIA):

• Bilateral Trade and Investment Agreement is a Free Trade Agreement between India and EU, which was initiated in 2007. Despite a decade in talks, the agreement has been in deadlock.
• The contentious issues for India are:
  • Data secure status:
    • India has not been granted “data secure nation” status by EU. If the EU provides India with the status, it will lift restrictions on the flow of outsourcing business to India.
    • U.K. visa rules discriminate against Indian technical professionals, making it difficult for them to acquire work visas.
  • Barriers to trade:
    • EU has imposed stringent non-tariff barriers on Indian agricultural products in the form of sanitary and phytosanitary measures.
    • EU has also imposed a ban on sale of several pharmaceutical products even though they were clinically tested.
  • Bilateral Investment Agreements:
    • India decided to lapse the most BITs with EU member states, whereas EU wanted India to continue the existing treaty until EU India FTA is signed.
  • Free access for textile industry:
    • Apparel exports from competing countries such as Vietnam enjoy zero/preferential access to European Union whereas India faces a duty disadvantage. Hence, India has been seeking free access for its textile sector.
• The contentious issues for EU are:
  • Demand for further liberalization:
    • EU has demanded greater market access for automobiles, wine and spirits, and further opening up of the financial services sector such as banking, insurance and e-commerce, with less duty interference.
  • Tax reduction:
    • The EU wants India to reduce taxes on liquor (which would benefit France) and automobiles (which would benefit Germany)
  • Investor-State Dispute Settlement (ISDS):
    • India’s ISDS mechanism is such that in case of any dispute, a foreign company has to go through the domestic jurisdiction process for at least five years before going to international arbitration; the EU is against this provision.
  • Bilateral Investment Treaty:
    • EU has been pushing to negotiate upon Bilateral Investment Treaty before it starts negotiating the EU-India BTIA, which contradicts India’s stand.

WAY FORWARD

• Improve connectivity:
  • Connectivity is one of the major pillars of engagement between the two as physical connectivity, human connectivity and digital connectivity can be the newer areas of cooperation
• De-hyphenate EU’s policy on China from Indo-EU policy:
  • India is a key ally for Europe particularly in the context of China, however, Europe must avoid looking at India as only an alternate to Beijing.
• Put more effort on renegotiation of the trade deal
  • The timing seems propitious for India and the EU to renegotiate the trade deal and trust each other not only to promote rules-based multilateral order in the Indo–Pacific but also to achieve other strategic ambitions.
• Build cooperation on data protection
  • The India–EU Roadmap specifically highlights the need to build cooperation on data protection and regulation.
• Setting up a trilateral dialogue
  • Setting up a trilateral dialogue with other like-minded partners such as Japan or Australia and India can help in improving the EU’s visibility in the region.

CONCLUSION:

• The European Union is the third axis (the other two are the US and China) upon which the world’s near-term future depends on.
• Given the common values and objectives, the EU and India, working together, will have a greater impact on shaping global political and economic governance.
• Hence, a fresh start in the relationship is essential. India’s proposal to negotiate an early harvest agreement with the UK, ahead of a full-fledged free trade pact can be seen as a first step in this light.
• Also, India needs to diversify its cooperation with the EU by leveraging upon the Indo-Pacific strategy and strengthen its position as the net security provider in the Indian Ocean region.

PRACTICE QUESTION:

Q. “India–EU relations have witnessed progress both politically and economically, but the potential remains unmatched and unmet due to reluctance from both sides”. Discuss