India’s GDP grew 6.1%, making it the fastest-growing among the world’s top economies. A recent Morgan Stanley report predicts that in the next decade, India may become the world’s third-largest economy and third-largest stock market by 2027. Four key factors — demographics, digitalization, decarbonization and deglobalization —will determine this rise.
The European Union (EU) is one of India’s largest trading partners and a principal investor. Substantial Indian investment is also flowing towards Europe. The EU is India’s 2nd largest trading partner, accounting for about $120 billion worth of trade in goods in 2022 or 10.8% of total Indian trade. India is the EU’s 10th largest trading partner, accounting for 2% of EU total trade in goods.
India’s merchandise exports to EU member countries stood at about $65 billion in 2021-22, while imports aggregated at $51.4 billion. In 2022-23, the exports aggregated at $67 billion, while imports stood at $54.4 billion in 2021-22. Interestingly, India had a trade deficit with the EU in 2018-19 that turned into a trade surplus of $13 billion from April-February 2022-23. With India and the EU progressing on the proposed Free Trade Agreement (FTA), The EU and India held their first ministerial meeting of the Trade and Technology Council (TTC) last month in Brussels.
The TTC aims to tackle trade, trusted technology, and security challenges and further strengthen India-EU strategic partnerships. This TTC is the first for India and the second for the EU, as the EU’s first was launched with the United States (US) in 2021.
The India–EU TTC comprises three working groups—the first on Connectivity – strategic technologies, digital governance, and digital connectivity, which will focus on areas such as quantum computing, AI, semi-conductors, etc.; the second on Clean energy – green and clean energy technologies with a focus on the circular economy, green transition, waste management, etc.; and the third on Commerce – trade, investment, and resilient value chains, which focus on the resilience of supply chains, and the identification and resolution of trade barriers.
1. Connectivity
In the information age, infrastructure development is not restricted to roads, highways and ports. Digital and technology infrastructure is a crucial enabler of economic and technological growth.
Interoperable digital identification is an up-and-coming area for bilateral cooperation. The EU can learn a lot from India’s Aadhaar digital project. The EU Digital Single Market and the increasing number of citizens working, travelling, or living in another country make it imperative for EU member states to introduce digital ID systems that work across borders.
Europe aims to make all critical public services online by 2030, when 80% of EU citizens should use a digital ID. Again, India’s Aadhaar system could serve as a case study for the EU to identify the strategies and incentives for EU citizens to increase the uptake of digital IDs and services. Moreover, India is expanding its digital ID to four essential services – identity, payments, data, and open networks – under the principle of interoperability. Europe can learn from this, too, as we move towards introducing an EU digital identity wallet for all citizens and harmonising digital solutions for public administrations, businesses, and citizens, both cross-border and cross-sector.
Developing the digital economy is another field of cooperation, offering excellent opportunities where the EU and India face similar challenges. The EU and India aim to cooperate on quantum and High-Performance Computing research and development projects to help address such challenges. Moreover, both partners are committed to seeking cooperation in AI and semiconductors and aim to work towards bridging the digital skills gap and engage on 5G, telecoms and Internet of Things standardisation.
2. Clean Energy
India is the 3rd largest energy-consuming country in the world. India stands 4th globally in Renewable Energy Installed Capacity (including Large Hydro), 4th in Wind Power capacity & 4th in Solar Power capacity (as per REN21 Renewables 2022 Global Status Report).
In its endeavour to achieve the $ 5 trillion economy goal by 2024 – 25 and become the third-largest economy by 2030, India has been putting a renewed focus on reducing the country’s overall carbon footprint and meeting its Sustainable Development Goals (SDGs) commitments made during the Paris Agreement. To bring in a green revolution in the country, the government has set an ambitious target of having 500 GW of installed renewable energy by 2030, which includes the installation of 280 GW of solar power and 140 GW of wind power.
Europe’s energy system facing an unprecedented crisis, as gas supplies from Russia have been cut by more than 80% and electricity prices have surged manifold. The EU’s current 2030 target is for a 32% renewable energy share. India’s massive investments in renewables can be a game-changer. Together, we can join forces in making our economies more energy efficient and resilient and our energy supply renewable and reliable. Cooperation on research and innovation is seen as an important vehicle to unlock this potential and bring new and sustainable technologies to the market.
The EU aims to be climate neutral by 2050 and India by 2070. Both partners aim to drive innovation and increase research efforts because of safe and sustainable development to reach these objectives. The EU and India focus on wastewater management, including plastic litter and waste to hydrogen, recycling of batteries for e-vehicles and standards through pre-normative research.
3. Commerce
The Covid-19 pandemic, especially, exposed the bottlenecks and dependencies in global supply chains. This has made international collaboration and multilateralism a necessity, not a choice. This is where trade comes into the picture. Cross-border movement of raw materials, equipment, and finished goods is necessary to keep the efficiency of the entire ecosystem at a respectable level. Trade is essential to ease any supply chain shocks and vulnerabilities that still remain prevalent.
The current energy crisis is fueling exploding operational costs across Europe, increasing by 200-300% in some strategic sectors. This poses a significant threat to the EU’s global competitiveness as the manufacturing cost gap is sharply widening with other regions. Urgent diversification in the energy and health sectors is crucial to Europe’s supply chain resilience on the long run.
Human capital movement is one of the key areas to focus on for developing and creating a cross-border human capital model dedicated to improving scientific and technical knowledge dissemination. Scientists, engineers and other technology workers must be allowed to engage in R&D and implement large-scale projects in each other’s countries. The exchange of STEM employees in India and the EU can help facilitate cross-border human capital movement, thereby creating a robust workforce in both regions.
The EU and India have agreed to deepen their common work on resilient value chains, work to resolve bilateral market access issues and exchange information on each other’s mechanisms on foreign direct investment screening. They also aim to address global and multilateral trade issues and have also agreed to intensify their engagement on carbon border measures.
Conclusion
India and the EU have outlined sectors of cooperation, including AI, semiconductors, and clean energy, including electric vehicles (EVs) and hydrogen. The TTC allows both partners to add heft to their strategic partnership. It will enable India and the EU to showcase their strengths and policy outlooks on issues of mutual importance and to coordinate their efforts on areas of mutual concern.
The TTC offers India an opportunity to integrate into the current global supply chains and become an indispensable part of the ecosystem. It is a gateway for India and its domestic tech, health and energy sectors to improve access to the thriving EU market. This can create an open call for a more effortless flow of technology products with lesser import restrictions and export duties.