India rises in east as new economic star

Date: 14/11/1996

IN the European Union's search for an expanded political and trade relationship with Asia, it is east Asia's 'tiger' economies which tend to get top billing.

Europe's more far-sighted Asia-watchers and entrepreneurs, however, are pressing the Union to take a closer look at the equally significant, albeit less publicised, economic 'miracle' taking place in India.

Their message is simple: India, once viewed as an aid-receiving, largely rural and underdeveloped nation, now boasts one of the region's more powerful economies.

Growth rates in recent years have fluctuated between 6 and 8&percent;; industry and services represent about 30 and 42&percent; respectively of gross domestic product; import tariffs, while still high by western standards, are set to come down; and up to 150 million middle-class Indians have developed an avid appetite for foreign goods.

“India is a rising force with the 11th largest economy in the world,” said an official at the European Commission.

The challenge now is to make EU governments and business leaders more aware of India's changing environment - and its new international aspirations.

Take relations with Europe, for example. India is seeking membership of ASEM, Europe's new political and business forum with east Asian countries. But Delhi was not even asked to send a representative to the first Asia-Europe meeting in Bangkok earlier this year.

India's new ambassador to the EU, Chandrashekar Dasgupta, says his country would like to participate in the expanding Euro-Asian dialogue. “ASEM is an important forum and its importance would certainly be enhanced by the inclusion of India,” he insists, adding: “We believe this would benefit the group as a whole, not just India.”

Replacing outdated western perceptions of India with a more realistic assessment of the country's economic and political priorities will, however, require patience and hard work.

Despite the recent strides made, average annual per capita income in India is just 235 ecu; about 210 million people are still mired in poverty; and malnutrition, child labour and a low life expectancy continue to pose serious development problems.

In addition, much-publicised opposition in the past to investments by companies such as Coca Cola and Kentucky Fried Chicken has tarnished India's image as a potential destination for foreign investors. (McDonalds, however, has opened its first restaurant in Delhi without provoking any demonstrations.)

The European Commission, hoping to do its bit to update India's image in Europe, unveiled its first-ever strategy paper on India in June this year, highlighting the country's “new sense of dynamism”.

The Commission insisted that it was time for EU governments and companies to recognise India's new status as an “emerging economy, a huge potential market and an investor-friendly place”.

It also said that the cooperation agreement which India and the EU signed in 1993 needed to be updated to take account of what the Commission paper referred to as the “fundamental changes” in India's economic and political structures.

The collapse of the Soviet Union means that Delhi's once-close relationship with Moscow is now no longer a top foreign policy priority. Instead, India is seeking to expand its relations with the west.

Equally significantly, the once inward-looking Indian economy is now firmly committed to financial and trade liberalisation, and the focus on economic deregulation set in motion in 1991 is set to continue.

India has also made it clear that it wants a new framework for its relations with the Union.

Aid and financial assistance have dropped off the agenda, with India's top officials insisting that their country's new emphasis is on trade and business.

“A priority objective in India's foreign policy is to identify jointly with the EU and its member states new opportunities for mutually beneficial initiatives in trade and investment. We believe there is great scope for raising the level of our interaction in these areas,” says Dasgupta.

“Our political and economic agendas with the EU are mutually reinforcing. In other words, our growing economic ties will also help to reinforce our political ties.”

European and Indian government officials, business leaders, bankers and trade experts will meet in Brussels on 28 and 29 November to seek ways of promoting closer trade and investment links between the two sides. EU officials say the meeting is part of the Union's new efforts to “expand and deepen” Euro-Indian relations.

“India has a huge potential for investment and Europe should grab this opportunity,” said one Commission official.

While European companies are still lagging behind their American and Japanese rivals in China and east Asia, the Commission insists that if EU firms act quickly, they could succeed in capturing a respectable share of India's increasingly lucrative market.

European investments represent 18.4&percent; of all foreign investments in India, only a few percentage points behind the US with 22&percent; and far ahead of Japan, which has just 5.2&percent; of the total.

“What we are saying is that more European countries should seek out business opportunities in India,” explained a Commission expert on Asian affairs. “The Germans and the British are there, of course, but we also want Spanish and Italian investors to pay attention to India.”

Euro-Indian trade is booming. Both sides are encouraged by the recent 20-25&percent; annual increase in bilateral trade. But Union and Indian officials also stress that the two-way trade flow, currently estimated at 14 billion ecu, could do with a boost. (After all, the EU and Singapore, one of Asia's smallest countries, notched up trade worth 16 billion ecu last year.)

“We are not fully satisfied with trends in our trading relationship,” concludes Dasgupta. He describes recent figures as encouraging, but stresses that EU-India trade is “still way below what it ought to be”.

Dasgupta says one area of concern to his country is EU non-tariff barriers which artificially depressed the level of India's exports to the Union.

“Some of the EU's preferential trading arrangements with other regions are also an impediment to the natural growth of trade,” he maintains.

While India's textile, leather and engineering goods are still subject to either quotas or tariffs, the EU is phasing out all import restrictions on trade with potential future member states in central and eastern Europe and the 12 southern Mediterranean states with which it wants to set up a Euro-Med free trade zone.

In recent months, India has also expressed concern about losing half the trade concessions it currently enjoys under the Union's Generalised System of Preferences (GSP) for its textile and clothing exports. This is because, according to the new GSP regime, developing countries which have proved to be “highly competitive” in specific sectors will be progressively “graduated” out of the scheme.

Indian exporters are irked by what some of them describe as the “constant threat” posed by the EU's anti-dumping machinery. The Commission is currently considering imposing an anti-dumping fine on Indian exporters of undyed grey cotton cloth to the Union and a similar investigation has been launched to see if Indian exporters of bedlinen are selling their products in Europe at below-cost prices.

India's trading partners are equally insistent that Delhi must start cutting tariffs and removing barriers in its textile, clothing and other industrial sectors. At a recent conference in India, Anwarul Hoda, deputy director of the World Trade Organisation, warned Indian officials to speed up the tempo of economic liberalisation.

“The pace has to be quickened because there are other countries which are liberalising faster,” he insisted. “There are hard decisions to be taken and sacrifices to be made, but there is little choice if India wishes to avoid marginalisation.”