ANALYSING TRADE BETWEEN INDIA AND THE EUROPEAN UNION

Abstract

ABSTRACT Trade Relations between India and the European Union (EU) have been marked with roadblocks and obstacles, with the result that the volume of economic interaction remains way below its potential. A deeper analysis reveals that these roadblocks are due to the high tariff barriers as well as non-tariff barriers, which have continued to play an influencing role in the discussions on the India-EU Free Trade Agreement (FTA). High tariff barriers are essentially aimed to protect the home industry, whereby the non-tariff barriers are largely based on the perceptions about each other. These perceptions translating into a lack of trust have a greater impact on the trade-relations between the two trading partners. Lack of consensus and absence of a clear vision have also influenced the discussions regarding the quick implementation of the India-EU FTA. The paper analyses the potential between the two trading partners and the accrued benefits which outweigh the costs for both sides. Proponents of liberal thought have argued in favour of eliminating trade barriers. They claim that trade results in a win-win situation and is not to be seen as a zero-sum game. The external factors continue to play an important role in shaping relations between India and the EU. The dynamics of global politics and the rapidly shifting of alliances, India has to manoeuvre its relationship with the EU in a tactful manner safe-guarding its self-interests at the same time. This paper evaluates the qualitative and quantitative relationship between India and the European Union. A special section discusses the bi-lateral trading relations between India and Germany and what lessons can this relationship bring for the European Union as a multi-lateral trading bloc. India and Germany are two economic powerhouses in their own respective regions. Whereby, India is a strong economy of South Asia, Germany remains a dominant country of continental Europe. Both countries are also characterised by their shared values of being a pluralist society, their respect for human rights and their shared commitment towards sustainable development. Germany’s economic recovery was extraordinary after the second world war, whereas, the Indian economy stagnated for more than four decades after independence. The second major milestone in the history of both countries was the fall of the Berlin wall followed by the consequent unification of Germany and the liberalisation v reforms of 1991 in India. Both these developments changed the contours of the Indo- German relationship to transform their relationship into a strategic partnership. In the recent years, COVID-19 had its own impact on this relationship. The foreign policy of India and Germany has largely hinged on all these factors. The economic and the geo-political consequences of this relationship can weigh heavily in the new global order. This paper looks at the dynamics of Indo-German relationship at a qualitative level and also discusses the quantitative relationship and the impact of India’s trade with Germany on its GDP through the empirical analysis. The qualitative analysis deals with the evolution of relations between India and Germany, the perceptions of each other and the importance of these relations in defining their foreign policy. India’s trade with Germany and its impact on Indian GDP also gives a basis for deepening relations between the two countries at a bilateral level. The bi-lateral relationships are important as seen in the special section on India and Germany. Whether these bi-lateral relationships can serve to guide India’s relations at a multi-lateral entity namely the European Union is also discussed. Analysing trade relationships with major trading partners of India within the EU, and comparing these with the collective European Union, gives a sound understanding of India-EU relations. This paper concludes that the potential to increase trade between the two partners is significant. With the changing global landscape, the two partners need to take decisions on issues where they are willing to make concessions. This will inject confidence and enthusiasm and open doors for further negotiations on sensitive issues. Trade agreements also need to be complimented with decisions in other sectors like defence and security, space-research, R&D etc. The decisions taken by India and the EU in the next few years and how they strengthen their relationship will be crucial for them as well as for the world for a long-time to come.