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Guest Column

Published on: May 19, 2021, 2:04 p.m.
Time to rebuild India-Europe ties
  • Europe: too large to be ignored

By Georges Ugeux. The author is chairman & CEO, Galileo Global Advisors, and he teaches banking and finance at Columbia Law School

India and the European Union (EU) have agreed to resume discussions about a free trade agreement (FTA), eight years after the talks got stalled. Britain and India will begin formal free trade deal talks later this year, the UK government said, after they agreed an initial package to boost bilateral trade and investment.

These two announcements refocus the attention of India towards Europe. It is not just a political initiative; it also is a highly symbolic development that represents an opportunity for both sides.

Indo-European? Indo-European languages, a family of languages, spoken in most of Europe and areas of European settlement and in much of Southwest and South Asia, are common to the two partners. India has the largest diaspora population in the world, with 18 million people from the country living outside their homeland in 2020, according to a report by the United Nations. 

The influence of Britain led to the decision to make English one of the two languages mainly spoken in India. Indians comprise about 1.4 million people in the UK, making them the single largest visible ethnic minority population in the country.

Mutual neglect The past decades have been marked by two trends – first, the focus on China by Europe has largely supplanted its interest in India. The EU (including the UK) foreign direct investment stocks in India amounted to €75.8 billion in 2019, which is significant but way below EU foreign investment stocks in China (€198.7 billion) or Brazil (€318.9 billion). The EU is the third largest trading partner of India, while India is the 12th largest trading partner for the EU.

Second, India has largely been focussed on the US as well as the UK for the reasons explained above, but also because both countries were more open to migration. The diversity of languages and countries also made FDIs or migration more difficult in the EU.

Brexit and the EU The UK, despite having a common language, is a negligible partner for India – both on trade and on FDI. There is, however, a substantial presence of Indian IT companies in the UK. It was convenient for Indian companies to cover Europe through their presence in the UK.

Brexit changes the situation and forces all Indian global companies to redefine how they will reach out to the EU’s 450 million population and $14 trillion GDP. This continent is too large to be ignored.

This strategy will require a lower dependency on Indian leadership: this is important from a business viewpoint, but it is also critical to recognise that, over the years, the relationship with EU institutions has been neglected by most Indian groups. 

Preparing the FTA is not just a matter of statistics and standards. It is an opportunity to revisit the relationship and change the mindset on both sides. After 20 years of working with Indian and European groups, I can testify that it has always been a challenge to convince Europeans to look at India (with the exception of Germany) and for India groups to establish themselves as European citizens, something they knew how to do in the UK and the US.

Will the US improve? The bromance between Prime Minister Modi and President Trump, including in some sensitive human rights issues, had not gone unnoticed. The global rhetoric of the new US administration should not hide the fact that something fundamental has changed in the US: the focus on self-interest under Trump has demonstrated that protectionism did not hurt the country. 

Already, US Treasury holdings by foreign investors (mostly central banks) represent 25 per cent of the US debt, against 35 per cent five years ago. The strength of the US commitment on treaties has proved to be weaker than expected and the US has reneged on two treaties: how solid will the re-entry of the US be?

The rejection of migration will remain: increasing migrants from 15,000 to 65,000 is noticeable but marginal. The Democrats, when in power, took some initiatives that affected the Indian IT industry and current Senate leader Chuck Schumer was instrumental in restricting imbedded access to their clients. Strategic considerations should definitely prevail, but the relationship needs to be rebuilt on sound economic and social bases. 

New globalisation The world has changed after Trump and the pandemics. The definition of global trade was based on the circulation of goods and services around the world. The US championed their access around the world. The backlash cannot be ignored, and the retreat of the US will signal a multi-polar world. 

This is a unique opportunity for India to redefine its leadership, as well as for Europe to get its act together to become one of the largest geographic poles. India and Europe are deeply democratic. Europeans have been admirers of India’s culture and visited the country, not only to gain knowledge, but also to form emotional ties with the country and its people.

Both sides have to rediscover each other. It is a wonderful opportunity that should not be missed. It is also a multicultural challenge

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