External Affairs

Europe, India and Modi: It’s Time to Start Over

Narendra Damodardas Modi, painted portrait by Thierry Ehrmann (CC 2.0)

Narendra Damodardas Modi, painted portrait by Thierry Ehrmann (CC 2.0)

India and the world are still getting used to Narendra Modi. A year after he came to power, the turbo-charged, much-travelled Indian Prime Minister has earned a reputation as an astute deal-maker and skilful economic diplomat.

The jury may still be out on his government’s achievements but with his vision of a new India, complete with smart cities, state-of-the-art railway tracks, highways and airports, a digitally-empowered society, sustainable green policies and a “Make in India” campaign to attract global investors, Modi is shaking up India – and world perceptions of India.

Finally, an embrace for the EU

Encouragingly, Modi’s warm embrace of foreign partners could soon also extend to the European Union, not just national European governments. Signs of a long-awaited Delhi-Brussels rapprochement have raised hopes that the two sides are now ready for action in three pivotal areas.

First, after a year of little or no high-level contact, Delhi and Brussels appear ready to resume negotiations on the much delayed Bilateral Trade and Investment Agreement (BTIA), a comprehensive deal covering all areas in goods, services and public procurement in both markets. Once signed, the agreement could act as an important launching pad for increased European investments in “Make in India”.

Second, India’s new economic programme opens up fresh avenues for increased EU-India synergies which go beyond the two sides’ traditional interaction. This could include cooperation in areas where both sides have a strong economic interest such as infrastructure investments, sustainable urbanisation, innovation and synergies between “Digital India” and the EU’s agenda for a Digital Single Market.

Third and most importantly, there are hopes that EU and Indian leaders could meet for summit talks, possibly in November this year to coincide with the G20 summit in Antalya, Turkey. With no bilateral summit held over the last 3 years, – the last such gathering was in February 2012 in Delhi – the EU-India relationship is in desperate need of renewed political direction to give it a new lease of life.

Where there’s a will, there’s a way

EU-India relations need to be broadened to include a “beyond-trade” agenda – and Modi’s wide-ranging modernisation agenda offers ample opportunities for such new synergies. Realistically, however, a quick relaunch of the stalled BTIA negotiations is required to get the relationship back on a constructive track and for discussions to begin in new areas.

This may now happen. EU Trade Commissioner Cecilia Malmström and Indian Commerce Minister Nirmala Sitharaman, who met on the margins of an OECD meeting in Paris on June 4, have agreed to restart the BTIA talks as soon as possible. Contacts are expected to resume after the new Indian commerce secretary designate Rita A. Teaotia takes charge at the end of June, leading to cautious hopes that the deal – eight years in the making – will finally be clinched early next year.

For that to happen, key “last mile” issues will need to be resolved. The EU has made clear that it is targeting the emerging well-off Indian middle class for enhanced market access in automobiles, wines and spirits, and cheese. Brussels is also calling for reform in Indian laws on intellectual property rights, trade and environment, and trade and labour and wants liberal access in insurance, banking, and retail trade. India, for its part, is insisting on more labour mobility, professional work visas and recognition as a data secure country to attract more European investments in its high tech sector.

With two-way trade estimated at around €72.5 billion (Rs 5,200 billion) in 2014 while the EU’s investment stock in India was €34.7 billion (Rs 2,500 billion) in 2013, there is certainly ample room for improvement. But agreement on BTIA will require that both sides summon up the political will to look beyond the array of technical issues to the deeper strategic importance of their relations.

Let’s get practical

European investors are willing and eager to enter the Indian market, and India’s new global companies are setting up shop across Europe. However, Europe and India have much to discuss beyond trade and investments. European know-how could be valuable to India’s reform and modernisation agenda at a time when both sides are struggling to boost growth and create more jobs. As such, the focus should now be on hammering out a more practical, pragmatic and operational agenda which seeks to find as much common ground as possible between Modi’s aspirational programmes and the EU’s new initiatives to boost growth and jobs, including the investment plan drawn up by European Commission President Jean-Claude Juncker and the creation of a digital European single market. Building smart cities, increasing the use of renewables and improving education and skills are other areas of possible cooperation. Also, while India may not want such counsel, the EU is well-placed to share its experience in building a single market, economic reform and modernisation, cutting back over-regulation – the new Commission priority – and improving the business environment.

Two key aspects of “Modi’s India” deserve special attention:

Come and “Make in India”

Since Modi took office a year ago, his government has been emphasising strengthening domestic manufacturing, including in defence, which is one of the 25 areas listed under the “Make in India” campaign which the Prime Minister underlined recently is “our commitment – and an invitation to all – to turn India into a new global manufacturing hub”. He added: ”We will do what it takes to make it a reality”. An EU-India deal on trade and investments will certainly ease the concerns of some European companies as they seek out manufacturing venues and projects in India. But the government must still deliver on its promises.

With voice connectivity at only about 60% and data penetration far lower at about 20%, India ranks as low as 129 out of 166 countries on the ICT development index and has the dubious distinction of being placed in the group of least connected countries in the world. These are formidable challenges for making progress towards Digital India. Creating “Digital India” is a top government priority with plans underway to launch a dozen online portals for loans, rural e-commerce, national scholarships, lost and found children, e-hospital, tele-medicine and e-bag (online study material for students). In fact, India is considering doubling spending on a high-speed internet grid to connect villages across the country to 11 billion dollars.

Get the leaders together

In order to get India and the EU talking to each other on these and other equally interesting topics, Modi’s “can do” spirit needs to filter down to different, less adventurous, echelons of the Indian bureaucracy. The European External Action Service, meanwhile, must work in tandem with the European Commission’s trade and other departments to hammer out a fresh EU-India agenda for action which looks at new areas and new interests. Such an action plan should be short, snappy and action-oriented, rather than the long “wish list” which the EU traditionally draws up with and for its partners. Such a hopefully pithy document could then be approved at the EU-India summit later this year.

Above all, both sides must take a fresh look at each other. European member states have already recognised the importance of India, both as a regional actor and an influential global player. It is time the EU institutions shed their reservations and engaged with India as an increasingly powerful 21st Century partner. Equally, India should recognise that while relations with national European governments are important, the EU also has much to offer. It would be a pity if the full potential of EU-India ties were to remain untapped and unexplored. Both sides have much to gain from deepening their relations. It won’t be easy to shed old habits and set off on a new course. But, yes, they must and yes, they can.

Shada Islam is Director of Policy at Friends of Europe