External Affairs

Modi and Merkel Put India-EU Free Trade Agreement Back on the Agenda

German businessmen also told the Indian prime minister that the lack of a bilateral investment protection agreement was hampering their investment plans in India.

German chancellor Angela Merkel welcomes Prime Minister Narendra Modi with military honours for a meeting at the Chancellery in Berlin, Germany, Tuesday, 30 May 2017. Credit: DPA/PTI

Berlin: Prime Minister Narendra Modi strongly endorsed German Chancellor Angela Merkel’s vision of the European Union and committed at the earliest to resume talks between India and EU to stitch up a free trade agreement encompassing goods, services as well as mutual investment protection. “A strong leadership like that of Merkel’s is needed for global stability”, Modi said.

Modi seemed to subtly underscore the political significance of Germany pushing for a more liberal and open global order at a time when the United States under President Donald Trump is showing signs of protectionism and reneging on the Paris climate change agreement. Merkel had openly expressed her disappointment at the US’s somewhat insular approach last week.

As if to boost Merkel’s morale, Modi reinforced India’s strong commitment to the goals undertaken at the Paris climate agreement and even promised to partner with Germany on a sustained basis to develop renewable energy. “We are made for each other”, Modi said in a gesture of solidarity.

The prime minister’s promise to resume the stalled free trade agreement (FTA) talks with the EU also comes against the backdrop of India not attending the Belt Road Initiative meeting at Beijing, and Germany too expressing its apprehension that there isn’t enough transparency and openness in what China is attempting.

The Germans seemed to be signalling to New Delhi that a more democratic and open global trade and investment regime can be pursued by India and the EU in a fast changing world order. Modi’s body language  clearly seemed to suggest he was ready to do everything to build this partnership. In this sense, the timing of the Modi-Merkel meeting has its own significance.

Modi said innovation in society and democratic values must go together. The partnership between India and Germany will truly represent these values. The two countries signed 11 MOUs in the areas of renewable energy, skill development, education, urban infrastructure etc.

The prime minister laid special emphasis on the role being played by Germany in enhancing the skills of “800 million young Indians who need to be brought up to global benchmark” to realise the demographic dividend. He said the German small and medium industry, called Mittelstand, is playing a big role in the success of ‘Make in India’ as hundreds of German companies had shown interest in doing joint ventures in specific areas of technology and innovation. In keeping with his love for ‘backronyms’, Modi coined a new slogan for this project – ‘MIIM’, for Make in India Mittelstand. He also said a fast track system created by the PMO was working well to resolve problems arising for German companies in India.

However, the chairman of a German business association said during an interaction with Modi and Merkel that the lack of a bilateral investment protection agreement was hindering fresh investments. India cancelled most bilateral investment protection agreements in 2015-16 on the ground that they were outdated. But new ones have not been discussed or signed for over a year since notices were issued for the cancellation of the old agreements.

An official spokesperson admitted that the hiatus had affected fresh investment flows from Germany for greenfield projects. India’s current FDI flows are substantially in the form of acquisitions of existing Indian businesses and not in fresh projects.

Modi too admitted that German investments in India were still below their full potential. In this context the two sides have agreed to resume the India-EU FTA talks and conclude the investment agreements also as soon as possible.

It is apparent that India is selectively willing to look at FTAs which could be beneficial. The National Democratic Alliance government had become quite averse to signing regional or bilateral FTAs because of its assessments that many of these agreements – with the ASEAN countries, for example –  have not benefited India.

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