3rd December, 2003


S.Sethuraman *

In the post-liberalization era since the l990s, India’s image has gradually undergone a radical transformation as an emerging economic power given its huge potential and established skills of its vast technical manpower. Political and macro-economic stability have reinforced overseas perceptions of India as a leading country to do business with. Having become an outward-oriented economy, India has not only to be internationally competitive in goods and services but also evolve strategies for higher levels of trade and investment flows that would contribute to sustained higher growth over the coming decades.

In this context, the Government’s recent initiatives to strengthen and expand trade and economic links with nations of the East and West have assumed great importance. The "Look East" Policy has produced tangible gains with framework accord for a Free Trade Arrangement(FTA) with ASEAN (Association of South-East Asian Nations) at its Bali Summit in October 2003. India is also pursuing bilateral deals with Singapore and Thailand, key countries in a dynamic region, with a significant share of world trade.

The Asian market presents considerable opportunities for India to tap with its own booming IT sector and specialization in financial services, pharmaceuticals, health care and entertainment industry. Pending the realization of FTA by 2012, India-ASEAN trade is projected to rise, in the first instance, from the present 12.5 billion dollars to 30 billion dollars by 2007. India’s tariffs have been lowered over the years and would soon level off with ASEAN. India has also welcomed more investments from the South East Asian region.

More than half of India’s exports go to Western Europe and USA. The European Union(EU) is India’s largest trading partner taking 25 per cent of its goods. The three-decade old economic cooperation between India and EU, largely confined to trade and development aid, has entered a new phase with greater emphasis on investment and technological collaboration. India is no longer aid-dependant and has dispensed with taking loans from several countries and is already prepaying part of the past bilateral and multilateral assistance. India has also written off debts of some of the poorer countries. For some years the country has been shifting toward non-debt creating capital flows, mainly foreign direct investment.

The European Union has been India’s largest partner in both trade and investment and has also been an important source of technology in critical sectors and a major destination for service providers. At the Fourth India-EU Summit in New Delhi on November 28-29, Prime Minister Vajpayee made a forceful plea for the European Union, which takes a mere two per cent of its imports from India, to open its market wider for goods and services. He desired that the Indo-EU bilateral trade should be doubled from its present level of 27 billion euro (roughly 30 billion dollars) within five years.

The Prime Minister also urged EU businessmen to avail of the large opportunities for investments in infrastructure projects and outsourcing of business processes in India, given its large, highly skilled manpower and software specialization. He called for a more liberal regime for free movement of professionals and service providers in the proposed WTO agreement on services. India has already become the principal global centre for outsourcing of services by several US-based Fortune 500 companies. Most expert studies of late have projected a substantial growth in India’s software and related IT services turnover in the coming years.

Politically, India and EU, bound together by values of democracy and pluralism, share a common outlook on most major international issues. A joint statement at the end of the Summit said as global leaders in a multi-polar world, India and EU remain committed to strengthening the role of the UN in development field and in the maintenance of international peace and security. They also reaffirmed their determination to work together to strengthen multilateral institutions. This declaration is significant in the context of certain developments which have tended to sideline the UN or weaken multilateralism.

The European Union has warmly welcomed Prime Minister Vajapyee’s initiatives for friendship with Pakistan and normalization of relations as well as the latest cease-fire along the Line of Control in Jammu and Kashmir and the international border as steps towards settlement of their bilateral disputes. India and EU are also to strengthen efforts to check cross-border crimes and combat international terrorism.

India and EU have identical approaches on a number of international issues that dominate the headlines. They called for a central role for the UN in the rehabilitation and reconstruction of post-war Iraq and a realistic time-frame for allowing the Iraqis to determine their own future. Common positions were also set out on Afghanistan, settlement of Israeli-Palestinian conflict, and on furthering the peace process in Sri Lanka and Nepal.

The Summit, taking place in the context of efforts to revive the deadlocked world trade negotiations (Doha Round), provided a timely opportunity for India to place its views on the key issues of agriculture, market access and services and secure a better understanding from the EU of its concerns of a developing country with some six hundred million people dependent on agriculture for livelihood.

Support for agriculture in poorer countries is inescapable and the hope is that EU would now show greater appreciation of the needs of a developing country when the member-countries of WTO resume their deliberations in Geneva in mid-December on the modalities for negotiations on agriculture and other key issues in the Doha Round. Both sides evinced their interest to advance the trade negotiations in a cooperative spirit towards a successful conclusion.

The Summit decisions included the launching of a programme to enhance trade and investment flows through simplification of administrative and regulatory regimes, starting of negotiations for India-EU Maritime Agreement and bringing into force the successfully concluded Customs Cooperation Agreement. Reflecting its advances in the field of space, India will collaborate with the EU in the Galileo Project to explore new frontiers of technology.

For its part, India is also set to lower its trade barriers for greater trade within the South Asian region. Prime Minister Vajpayee has agreed to attend the next SAARC Summit in Islamabad in January and, with the process of normalization under way, it is expected that the region would at last begin to march towards a preferential trading arrangement. India is already in the process of a comprehensive economic cooperation agreement with Sri Lanka, expanding the scope of the present free trade accord. More countries closer to India are reportedly showing interest in such a cooperation.

India’s trade with China is also growing and should hit the ten billion dollar mark within two years. India, Brazil and South Africa, which took the lead in promoting the G-20 developing country grouping for multilateral negotiations, are expected to set up a Trilateral Commission when they meet in New Delhi in March next. Economics has thus come to the centre stage in India’s external relations and the Government has demonstrated its willingness to expand trade and investment and even to commit resources for achieving broadening of areas of cooperation with all developing countries both within and outside the South Asian region.

* Senior Freelance Writer


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