Narendra Modi's four-nation tour: India, Europe fresh trade treaty talks a win-win for both

Narendra Modi, on his four-day foreign tour, has decided to reopen negotiations on the fresh Free Trade Agreement (FTA) with the European Union from July, a spokesperson for the Ministry of External Affairs said at the end of high-level inter-governmental consultations between India and Germany on Tuesday. This is a major and the only tangible outcome out of the Modi’s four-nation tour so far. Evidently, there was pressure on India to resume negotiations on FTA after Chancellor Angela Merkel raised the issue with Modi during their meetings.

German businesses are worried since the absence of a bilateral treaty is a hindrance to their businesses and investments in India. For India too, the implementation of a fresh treaty is critical for its interests. India has significant trade relations with Europe which has contributed to 13.5 percent of India’s overall trade with the world in 2015-16, well ahead of China (10.8 percent), USA (9.3 percent), UAE (7.7 percent) and Saudi Arabia (4.3 percent). According to a report in Indian Express, there are more than 1,600 German companies, 600 German joint ventures operating in India, who brought in $2 billion in foreign direct investment in the last two years.

In an article yesterday this writer had argued why it is critical for India to have stronger relations with Europe in the current context. There are both economic and diplomatic reasons. Over years, India has seen its trade declining with Germany from trades worth $18.73 billion at this point compared to $23.5 billion in 2011-12.

The declining trade and the slow-paced negotiations on a fresh trade agreement for several years (since 2007) have been an area of discomfort in Indo-German relations. Germany, one of the top exporters to India and a major importer, has been pushing India on this issue. In this backdrop, it would be a major achievement of PM Modi’s four-nation tour if the trade treaty is renegotiated formally.

Secondly, India needs a ‘friendly’ Europe to strengthen its clout globally. This is even more critical now with China advancing its investments and influence in the Asian region with the China Pakistan Economic Corridor and One Belt, One Road initiative, where India is not a party so far.

By boycotting the Chinese OBOR summit, India has isolated itself given that there is a general agreement for the OBOR from most countries, including many of India’s neighbors. This backing was evident from the opening ceremony that was attended by heads of 29 states, including Russian President Vladmir Putin. Also, delegations from over 100 countries were present in the ceremony. But, European countries have sought more transparency and level playing field in OBOR projects sensing that the draft agreement is tilted in favour of Chinese firms to hijack lion share of OBOR projects.

Time is particularly ripe for India to grab the opportunity given the US face-off with Germany on Paris climate accord and Donald Trump’s decision to pull out of free trade agreements. At the next leg of his visit, Modi will visit Spain, Russia and France. As of now, Modi’s commitment to reopen FTA negotiations as early as July is a win-win for India and Europe.