A vision without
action is a daydream, but a vision with action can change the world.
In the realm of trade and business today, India and the EU not only share
the same vision of growth but also act closely to enhance the existing
In the post-liberalisation era, the Indo-EU
relationship has become an integral part of the global economy and has
had a colossal impact on the international business environment.
With BMWs running on Indian roads, Indians
feasting on Italian pizzas, and Special Economic Zones (SEZs) in India
flooded with European companies, the country is no longer perceived as
the land of elephants and magicians.
Nonetheless, the magic is vibrantly alive
in the form of the socio-economic and socio-cultural changes that have
primarily occurred as a result of easy trading and increased FDI across
India's diverse sectors. Europe, likewise, has greatly benefited from
this thriving relationship.
A country, which was largely influenced by
the European continent in the colonial era, now happens to be the leading
business partner of the geography holding manifold future business opportunities.
India-EU: Partners in Business
The EU has emerged as India's largest trading partner - EU's share accounts
for 23.7 percent of India's total exports and 16.7 percent of the total
Indian imports (in 2004-2005). Correspondingly, India's share of total
EU imports and exports is less than 2 percent but has been growing significantly
in the recent years.
Approximately 50 percent of the multinational
companies operating in India are EU companies. The EU accounts for one
of the largest contributions to FDI in India - the total FDI approvals
for the EU have been approximately USD 17.1 billion between 1991 and September
2004, accounting for 25.4 percent of the total FDI approvals in India
during this period.
The European Union, with its 461 million citizens, has emerged as one
of the largest potential markets for India.
The India Story
India's GDP grew for the January through March 2006 quarter at 9.3 percent,
beating market expectations. Full-year GDP growth for the fiscal year
2005/06 has been revised to 8.4 percent from a previous estimate of 8.1
The investment and offshoring opportunities
that India offers in manufacturing, R&D and services, span across
a multitude of sectors. Cheap workforce, cheap raw materials, robust infrastructure
and strong government support with added tax advantages make India an
ideal destination for investment and offshoring.
India is geographically close to new Asian
markets and is itself a fast growing one. India also offers round-the-clock
opportunities, enabling MNCs to reduce the time-to-market for their products.
The easy availability of a vast talent pool that can undoubtedly beat
its western counterparts, adds yet another feather to the much adorned
Indian value proposition cap. Moving forward, the country boasts of housing
the second-largest English-speaking manpower in the world.
India is emerging as a major manufacturing
base that is attracting multinational companies in every sector. The Ministry
of Commerce, Government of India, has estimated that offshoring operations
can result in a cost benefit of up to 40-60 percent when compared to offshoring
to developed countries.
A. T. Kearney's
latest FDI confidence ratings reflect this phenomenon with India moving
up to the second place as the most attractive destination for FDI among
India is also a preferred destination for
R&D investment. It is the second-largest talent pool in the world,
comprising engineers, scientists and a skilled technical workforce. It
also presents significant cost savings and more value on every dollar
spent on R&D. The Indian government has been a pioneer in R&D,
especially in the social sector. It has been conducting research in agriculture,
space, defence, healthcare and alternate energy since the past few decades.
Developing as well as developed countries are now benefiting from India's
research in the social sector. Industry-led R&D is also witnessing
a boom in India.
The services sector accounts for approximately
50 percent of India's GDP and holds immense opportunities for potential
investment. Though BPO is a familiar term in India, terms such as KPO
(Knowledge Process Outsourcing), EPO (Engineering Process Outsourcing)
and LPO (Legal Process Outsourcing) are relatively new to the Indian lexicon.
The Indian IT-ITES (Information Technology
Enabled Services) sector revenues are expected to exceed USD 36 billion
in 2006, registering a growth rate of approximately 28 percent. Software
and software services exports are expected to grow by 32 percent in 2006.
The Indian Information Technology industry
is poised to generate revenues worth USD 54 billion by 2008. The fast
growth in the Indian IT sector is primarily led by cost arbitrage among
developed and developing countries. Besides the cost advantage, India's
large pool of skilled manpower offers unmatched advantages to IT companies
operating in India.
India-EU: The Action is Heating Up
As the world takes cognisance, the phenomenal
performance of the Indian economy has taken its business relations with
the EU to greater heights.
The majority of overseas acquisitions by
Indian companies are in Europe, which comprises approximately 50 percent
of the total mergers and acquisitions by Indian companies.
Many MNCs have initiated their R&D operations in an array of fields
including IT/telecom, pharmaceuticals, biotechnology, chemicals, and consumer
Many EU companies have set up manufacturing bases in India to leverage
advantages that India has to offer.
Sweden based conglomerate, ABB, uses its Indian plant for manufacturing
circuit breakers. After finding significant value in the venture, the
company wants to add more products to the portfolio for its Indian plant.
Another similar example is of German giant Siemens, which uses India for
manufacturing many of its power transmission and distribution equipment
components. The company has benefited by this exercise and has achieved
25-30 percent cost savings as compared to European and US costs.Mobile
handset manufacturer Nokia is weighing the option of setting up its manufacturing
plant in India.
Public private partnerships have seen a rise with both industry and world
class academic/research institutions gaining from the process. Further,
the traditional knowledge that exists in India and has not yet been tapped
for commercial use, can boost R&D in sectors such as medicine. In
short, India offers immense opportunities for EU companies that hope to
reduce their R&D expenditure and for European governments that are
seeking commercially viable technologies via technology transfer.
has the potential to become the number one knowledge-producing centre
in the world by 2025, going by the way that things are moving."
- R A Mashelkar, Director General of Council of Scientific and Industrial
With its well-developed infrastructure, strong
support from public administration, political and economic stability,
easy access to potential and key markets and favourable tax structure,
the EU also holds manifold investment opportunities for Indian companies.
The UK, for instance, allows all R&D expenditure on plants, machineries
and buildings to be written off in full in the first year. It has also
launched schemes, such as Link, Smart and Eureka, to provide companies
with the required assistance to establish themselves. As overseas investors,
Indian companies would benefit as well because of opportunities such as
skills' transfer and capital creation.
Realising the growing strategic importance of each other, the EU and India
are evolving joint initiatives for cooperation in diverse areas such as
civil aviation, maritime transport, science and technology, the space
industry, and information technology and telecommunications. In terms
of social cooperation, the EU and its member states are collectively the
biggest bilateral contributors to India's development plans. EU-India
cooperation is based on the priority sectors of education, health and
family welfare, and poverty alleviation.
in the New Business Scenario
The world's two great economies need to review and revisit some of their
policies and norms to reconsider their justifiability in the changing
global economic scenario. In the face of globalisation, the EU must remain
open and must also ensure that foreign markets are open to its own exports.
The high tariff and non-tariff barriers levied against foreign companies
pose challenges to European businesses accessing markets abroad. Removing
such barriers is even more important in the services sector, which represents
a major part of the EU economy but faces higher trade barriers than goods.
EU's long-debated subsidies to its rich farmers have had a detrimental
effect on the livelihood of poor farmers in developing countries including
India. Agriculture is the lifeline of the Indian economy and establishing
a healthy agri-business relationship is a must for a successful Indo-EU
relationship. Though Indian import barriers have been substantially reduced
in the recent past, they continue to remain high by international standards.
India also imposes a number of non-tariff barriers in the form of quantitative
restrictions, import licensing, mandatory testing and certifications for
a large number of products, as well as complicated and lengthy customs
Adding Newer Dimensions
May 01, 2004 saw the EU welcoming 10 new member countries into its fold.
While it was a glorious moment in EU's history, today, newer relations
are being formed between India and the new and bigger EU. The enormous
trade and investment potential that exists between India and the new EU
member countries, needs to be tapped. Commercial arrangements, such as
correspondent banking, export guarantees, insurance, etc., have to be
strengthened at all levels. A key challenge from the Indian point of view
is the fact that the EU's relatively higher tariff regime and trade defence
measures get extended to new member countries. On the other hand, the
Indian government needs to address areas of concern such as bureaucratic
and judicial delays, strict labour laws and poor reinforcement of intellectual
A Euro 13.3 million Trade and Investment Development Programme (TIDP)
has been initiated in May 2006. The objective of the programme is to assist
India enhance its trade and investment performance with the EU.
In the light of the
fact that only large EU countries, such as Germany, the UK and Holland,
are among the major FDI contributors to India, the TIDP would strive
to enhance trade and investment between India other EU members.
For a streamlined and momentous growth,
learning from each others' experiences is a must. By building a strong
economic and political relationship, both India and the EU are set to
send waves in the world politico- economic corridors.
Two territories, so diverse in culture and geographical demographics,
are evolving as major superpowers on the world map by learning form each
other's experiences and also by working together. The scope of this relationship
is not limited only to the trade and business environment but also includes
social, cultural and environmental cooperation. The recent global horror,
terrorism, that has transmitted fear waves across the world, needs to
be tackled together by synchronised and long-term action plans. Indo-EU
interactions would provide a platform to the two mighty geographies, to
grow mightier and together battle this menace and all other social menaces.
And this will not be the end of their journey, this would be the beginning.
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