An India-Europe free trade agreement must benefit both

An India-Europe free trade agreement must benefit both

By M.D. Nalapat | 13 April, 2013
Manmohan Singh
The Prime Minister needs to reverse course and defend Indian interests abroad rather than foreign interests in India.

Someone forgot to tell Manmohan Singh that the European Union is in crisis, with its banking system effectively bankrupt, and being prevented from visible collapse only by constantly feeding creditors the notion that the EU's financial worries are solvable when they are not. German banks in particular have been the victims of the country's propensity to believe that the EU offered a safety net sufficient to throw to the winds all canons of prudent lending. Their exposure to Greek and Italian debt, in particular, threatens the existence of many of them well before the next 18 months.

In such a context, to spend precious rupees on an expensive junket to Berlin would be laughable, if it were not yet another indication of the fact that time appears to have stood still for the Prime Minister and his economic team, who persist in the belief that the US and the EU are the solution to India's lack of capital, when in fact the answers are these days to be found in West and East Asia. A visit to Kuwait or Tokyo would have been much more profitable for India than the current rush to Germany. Certainly Manmohan Singh has the right to be sentimental about a continent in which he has spent so many happy years as a student, but sentiment has seldom been a sufficient foundation for sound policy.

Since his stint as Union Finance Minister during the Narasimha Rao period, Manmohan Singh has concentrated his considerable intellect on ways of making it easier for foreign businesses — predominantly those based in the member-states of NATO — to do business in India. Or, in other words, to compete with their Indian counterparts. The high bank interest rates favoured by his economic adviser, C. Rangarajan, who as RBI governor in 1994 slowed down a nascent economic boom by a similar policy has been combined with a slew of new regulations passed by the myriad arms of a government harking back to 1970s style control of private industry.

Overall, the effect has been to drain Indian industry of much of its global competitiveness during the nine years that he has been in office, with obvious consequences for the balance of payments. Given the government's penchant for unilateral (and unreciprocated) trade concessions to the EU, it is no surprise that Indian industry is looking nervously at the Prime Minister's foray into a country that has made overpriced manufactures almost an art form.

India being considerably poorer than Europe, it is only fair that the bulk of concessions ought to flow towards this country rather than away from it, as is so often the case. In particular, there needs to be tangible progress on efforts to ensure better access to Indian skill pools, IT and pharma into the European market, rather than simply industries such as textiles, which are rapidly giving way to more modern lines of manufacture. Thus far, the European side has remained committed to ensuring that its people pay extortionate prices for medicines, by blocking access to much cheaper substitutes from India. In the case of manpower flows, services and IT as well, the proffered concessions by EU negotiators have been derisory.

In exchange, what they are asking for is the destruction of the automobile industry in India through a flood of imports from Europe, mainly Germany, as well as unrestricted access to other manufactures and services, all without any corresponding benefit to India. Certainly Manmohan Singh's gesture of gifting the EU more than $10 billion via (an EU-controlled) IMF indicates the PM's generosity towards that particular entity. However, he needs to be reminded that those who voted him to office are in India, not in the EU, and that it is their interests that he has sworn to protect.

Should Manmohan Singh succeed in ensuring better access to Indian medicines — and the chances for this appear minuscle, given both the PM's propensities and the hold that Big Pharma has over EU policymaking — he can have the satisfaction of knowing that the biggest beneficiaries will be the Europeans themselves. At present, they are being forced to pay very high prices for drugs in a context where equally effective (and far cheaper) substitutes are available.

Shamefully, the EU has not merely blocked the flow of drugs from India into its own territories, but has sought through vexatious litigation and police action to stop them from going to countries in Africa, where the price of medicine is often a matter of life or death. Hopefully, someone in the PM's large delegation will whisper a complaint about this to the Germans, who have been the most aggressive in creating a Fortress Europe that demands concessions from much poorer countries such as India than it is willing to concede in return. An India-EU Free Trade Agreement (FTA) ought to be signed only if it is truly beneficial to both sides and not the one-sided agreements that policymakers in India so often return with. Rather than going about the futile task of begging the EU for capital that it does not any more have, the Prime Minister needs to reverse course and defend Indian interests abroad rather than foreign interests in India.

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