The EU, as a single market entity, has been India’s largest trading partner for the past several years. In 2007, with the aim of bolstering this trade further, India and the EU launched negotiations for an ambitious free trade agreement (FTA), with the unrealistically aggressive aim of reaching a deal within two years.
However, with no deal in sight even in 2013, the negotiations were abandoned. It was only in 2017 that the discussions began again and, despite the rather deep differences between the two sides, they remained hopeful of finally concluding the negotiations.
However, just as New Delhi and Brussels were hoping to end the decade-long impasse and wrap up a deal — pretty much like the EU-Japan FTA and similar deals with other countries including Canada — Brexit erupted and put a dense cloud of uncertainty over the entire deal.
Even though both sides tried to continue the negotiations, they soon realized the futility of the entire exercise, as any agreement signed before Brexit finally took shape or was canceled was likely to be extremely weak and faulty and would likely have to be rejigged or entirely reworked once Britain’s future became clear.
For almost two years following the Brexit referendum, the UK also tried to interest India in launching negotiations for a post-Brexit FTA. In November 2016, Prime Minister Theresa May made a quick visit to India, hoping to get the negotiations off the ground. However, she was given short shrift in India, which clearly did not see any reason to get into bed with the UK without first knowing anything about its divorce conditions with the EU. May tried, in vain, to raise the FTA again during the visit of Indian Prime Minister Narendra Modi to the UK in April last year.
Though India has a good reason to hold off the discussions with both the EU and the UK, the absence of a trade deal with its largest trading bloc is unsettling for India as well as the EU and, eventually, the UK, which is the largest G20 investor in India and New Delhi’s largest trading partner within the EU.
Even if Brexit happens in an orderly fashion, it will take years for Britain to negotiate FTAs with leading nations around the world.
Ranvir S. Nayar
All three parties stand to lose out due to the impasse. For India, exports currently account for only 19 percent of its gross domestic product (GDP), roughly half the world average. This is not a big concern for Indian leaders or businesses as they are yet to realize the immense potential that the large domestic market offers. However, as the economy grows and India develops capabilities in manufacturing and other sectors, access to export markets, provided by FTAs, will be crucial in keeping the engine of GDP growth steady and enabling the 1.3 billion Indians to improve their standard of living. Higher exports could indeed lead to job creation on a large scale and that would help deal with rising unemployment, which has become the biggest challenge for the government.
It is also crucial for the EU to finalize its FTA with India, or else it risks losing a share in what could be the world’s biggest economy, at least on the basis of purchasing power parity and its 1.5 billion consumers, which India’s population is expected to reach in the next two decades.
With the UK exiting the bloc, the EU would lose its cherished status of being India’s largest trading partner, when including both imports and exports. Other countries and regions have already started profiting from their own FTAs with India, as is the case with the Association of Southeast Asian Nations. Bilateral trade has grown to more than $82 billion and the two sides hope to take it to $100 billion by next year. EU-India trade growth looks rather sedate compared with these figures.
Even if Brexit happens in an orderly fashion, it will take years for Britain to negotiate FTAs with leading nations around the world.
- Ranvir S. Nayar is managing editor of Media India Group, a global platform based in Europe and India, which encompasses publishing, communication, and consultation services.
