Why India should not rush into a trade deal with the EU
India and the European Union have failed to conclude a free trade agreement despite negotiating it for over a decade. The gaps between expectations from both sides remain as wide as ever and India would be better off waiting for EU to finalise the conditions of its break up with Britain before signing any deal.
Negotiators from India will travel to Brussels this week to have a fresh round of discussions with the officials of the European Commission in order to break the deadlock over the Bilateral Trade & Investment Agreement (BTIA), as the free trade deal is now called.
Over a decade ago, the two sides had begun discussions on the deal with a lot of gung-ho and set an extremely ambitious deadline of concluding it within a couple of years. However, the negotiations hit a roadblock pretty soon as the two sides have a large basket of goods and services that they would like to protect from competition and the business and political lobbies on both sides are strong enough to derail any ambitious deals that could be seen to be hurting its domestic industry.
While the EU wants India to lower dramatically its import duties on a variety of products like automobiles, agricultural products, luxury items as well as alcohol, India has been asking the EU to open its own markets for greater Indian exports. India has also accused the EU of resorting to non-tariff barriers in imports of agricultural and marine products as well pharmaceutical exports from India.
India has also asked the EU to liberalise the movement of professional Indian workers, mainly in the ITES industry, within the EU in order to make the Indian IT companies more efficient in handling service requests from their clients. The Indian IT firms would also be likely negatively impacted by the stricter data protection norms under the General Data Protection Rules (GDPR) that the EU is bringing into play from May onwards. But the extent of the impact is likely to become clear only several months later.
On the other hand, the EU has been pushing India to open its services sector – mainly advocates and accountants – to foreign players.
There has not been any forward movement on any of the above issues to help bridge the gap. To add to the complications, the EU is currently focused on Brexit, a crucial issue for the future of the entire EU. As Britain is a very important trade partner of India, even within the EU, Indian trade with the EU and Britain in post-Brexit period would depend almost entirely upon the resolution of the Brexit deal.
In the absence of clarity on the shape of Brexit deal, it would make little sense for India to strike a trade deal with either the EU or the UK. Hence, while the two sides may well resume the negotiations, an agreement should not be rushed through. The timing of the EU-India agreement is also likely to impacted by the numerous state elections this year and the parliamentary elections scheduled for next year.
