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The Indian Alternative: Why the EU is forging a new partnership with the Asian giant

Executive Summary

  1. India is primarily concerned with domestic economic growth rather than with foreign policy considerations. Its over-arching mind-set remains largely protectionist.

  2. To stimulate growth in a post-pandemic economy, India initiated trade talks with the EU among others. The EU aims to tackle challenges relating to trade, technology and security with India.

  3. So far, while India shares Western concerns about China, it has rebuffed Western entreaties to get her on its side vis-à-vis Russia, and Delhi continues to strategically balance competing friendships.

Implications for International Business

  • Current trade talks with the EU will signal the extent to which India is willing to open up. While constituting a vast potential marketplace, India still has a difficult business environment.

  • Successful EU-India negotiations will increase both the level of FDI and GDP growth, but their outcome will mainly depend on Delhi’s willingness to advance market-based mechanisms.

State of Play India’s international relevance is growing despite focus on the domestic economy

The world’s second most populous country, India has significant economic potential and is an ever more relevant global actor. Western markets are key exports destinations, and through vehicles such as the Quadrilateral Security Dialogue, India increasingly cooperates with the West. However, historic legacies of non-alignment and India’s ties to Russia for arms supplies, place limits on such cooperation. India also shares interests with China due to their reliance on coal power and similar stances in climate change talks. Finally, while India seeks to exploit strategic synergies with other countries where possible, its priority remains domestic economic growth. Attempts to engage with India, such as Germany’s invitation to Prime Minister Narendra Modi to the G7 Summit, are welcome, but proper strategic alignment is still a long way off. Domestically, India faces significant challenges. Proposed agricultural reforms were abandoned after triggering protests by farmers. The Covid-19 lockdown highlighted the vulnerabilities of the country’s unskilled migrant workers. A recent heatwave harmed planted crops, putting food security at risk even though India has copious wheat stocks at present. Meanwhile, the ruling party’s attempt to prioritize the majority Hindu community risks a backlash from minority communities, most notably Muslims.

Key Issues A new chapter to tackle EU-India trade and technology challenges

While India has gradually liberalized since the 1990s, trade is still hampered by poor infrastructure, corruption, technical restrictions, and high tariffs. A recent shift towards self-reliance has led the country to adopt protective measures, including preferential treatment of local suppliers for public procurement. After the economy contracted by 7.3 percent in FY2021 due to the pandemic, the government initiated trade talks with several countries to stimulate growth. In April 2022, Australia and India signed an agreement, and in May 2022, a deal between India and the UAE came into force, both making the vast majority of goods traded bilaterally duty-free. Also in April 2022, the EU and India launched the Trade and Technology Council as a coordination mechanism to tackle challenges relating to trade, technology and security, and to overcome difficulties that hampered earlier trade talks. The two sides also plan to resume trade talks with a view to conclude them by early 2024, ramping up their relationship not least because of shared concerns about China.

There are, however, numerous differences to be resolved. Indian tariffs on cars, wines and spirits remain high. Also, registration requirements for various IT and electronic products and for in-country testing for telecom network elements are concerns for the EU. While India will likely call for greater access for its professionals, the granting of visas is not an EU competency but lies with its member states. The EU has not yet recognized India as ‘data-secure’ according its own levels of data protection. One incentive for talks to include data is that India’s position is closer to the EU’s focus on consumer rights, rather than America’s preference for companies or China’s for state control. Still, the main ingredient to overcome those numerous potential impediments to the talks will be political will, or the readiness to compromise.

Western efforts to get India off the fence vis-à-vis China and Russia

Historically, India has seen its bilateral relationships through specific national interests rather than through overarching alliances based on shared values. Its foreign policy is characterized by an ability to maintain ties with a range of countries hostile to each other, such as Russia, Iran, and the US. Its traditions of “non-interference” in others’ affairs made India a non-threatening partner to many. During the Cold War, India began to rely on Russia for arms supplies which has created a path dependency which persists today. The West became interested in India because it feared that the India-Pakistan conflict could turn nuclear. It also recognized India’s strong economic potential and the country’s role as a bulwark against an increasingly assertive China. While India in part shares Western worries regarding Beijing, certainly in the maritime domain, its primary concern is China’s claim over Indian territory and the related border disputes. On other issues, including climate change, India aligns more with China than the West.

While India’s ties with the West have intensified, they do not put the country into this camp, as demonstrated by Delhi’s recent abstentions on various UN votes relating to Russia’s invasion of Ukraine. In their engagement with India, the West appears to be playing a long game, hoping that as Indian involvement in global affairs grows, it will see that its interests are better served by siding with the West. Both sides of the Atlantic are engaging with India on issues such as security and trusted technology. Whether the Trade and Technology Council serves to increase the EU’s “offer” to India will be one marker of success. Already in 2021, India and the US agreed on a global strategic partnership, though no formal alliance. In sum, Western engagement with India falls far short of an over-arching strategic alignment. A further potential impediment includes India’s domestic policy, in particular its treatment of religious minorities – notably Muslims but also Christians. In addition, India is simultaneously pursuing free trade talks


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