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Opinion » Comment

Posted at: Mar 13, 2018, 12:54 AM; last updated: Mar 13, 2018, 12:54 AM (IST)

EU a better bet for India

Shifting international economic ties
EU a better bet for India
ON ITS TERMS: The US wants India to allow imports at low duties to suit its interests.

Jayshree Sengupta

Like a chameleon, President Trump is changing his economic policy frequently from when he took office. But the recent hike in customs duties on steel by 25 per cent and aluminium by 10 per cent go to show that he will not deviate much from his stand on ‘America First’ and ‘Buy American and Hire American’ slogan in the future. His views are largely determined by what the jobless blue-collared workers of America’s ‘rust belt’, who voted him to power, think of his policies. His recent tough stand on India’s service sector’s temporary immigrants under H-1B visas is also aimed at protecting jobs in the service sector. 

The new visa norms will impact IT firms in India and their employees. The IT firm would have to prove that its H-1B employee at a third party worksite has ‘specific and non-qualifying speculative assignments in speciality occupation’. American companies will have to provide proof that they are unable to find American employees before hiring an Indian. They will have to provide specific details on workers’ responsibilities, including why they are required and where they will work. The Indian IT firms will have to provide detailed statements informing on the specialised duties the visa applicant will perform, and the duration of the job. The US wants to ensure that the H-1B visa holders are not earning less money than promised and that they are performing only speciality jobs. The new announcement empowers the US to issue H-1B visas to an employee for only the period he/she has work at third party worksite.

Trump’s action, however, is an acute form of the general attitude of developed countries towards the rest of the world and their aim is to protect local jobs from cheap migrant labour and save their industries from competition from low labour cost countries. But when India wants to protect jobs in its motorcycle industry, Trump is angry. He thinks India should behave like the US regarding imports and allow them to enter at low customs duties. He is threatening retaliation.

Trump threatened China also with hike in duties during his election campaign and his new stance on steel will affect not only China, but also Canada and the EU. He raised duties on washing machines and solar panels in January and claimed that it created 200 jobs in Ohio. Trump has targeted countries with which the US has a trade deficit and India is one of them. India has a trade deficit with US of $24 billion. He wants India to buy more from the US and cover the deficit. 

India has resorted to customs duty hike on 45 products since the last Budget because it is afraid that neighbouring countries, mainly China, will swamp Indian markets with manufactured goods. Modi wants Apple IPhones to be made in India and shift away from China. But protectionism never succeeds and leads to retaliation. Even so, India has gone for it overtly though we were never a fully open economy.

In the past, the EU has been trying hard to pry open India’s agricultural (dairy) and service market. It also wants India to open up the manufactured goods markets, asking for lower duties on imports of cars, auto parts, wines and spirits. The resistance from India has brought about a standstill in the EU-India BTIA (Broad-based Trade and Investment Agreement). With Europe also, India has a trade surplus and the EU is the biggest trade partner of India in terms of the percentage of India’s total trade going to it at 13.5 per cent. But for the EU, India is not the biggest partner and ranks ninth. Its investments in India are more than from the US at 51.2 billion euros. Both these important trade partners —EU and the US — are not willing to give concessionary access to India as a developing country and are treating us as equals.

India, too, regards itself in the league of big emerging powers and Mr Modi is fond of boasting how from a $2.8 trillion economy, India will soon be a $5 trillion economy and how in a few years India will be the third largest economy in the world. Such words are music to the ears of the US and EU who see India as their potential market where they can make huge profits. No wonder that they want more reforms from India and ask India to open up its agriculture, services and manufacturing sectors by lowering tariffs on imports. 

The EU is a reliable partner and being geographically nearer than the US, has been present in India in development efforts and skills training for decades. There are many ways in which EU programs can help India in education, science and technology and green energy. India should try to expedite the EU-India BTIA if it wants to move forward in enhancing competitiveness for tackling Chinese imports through R&D and technology transfer. It is better to bet on partnership with Europe when China is positioned to be the most important economic power in Asia.

India needs FDI and the EU can come forward with more FDI if we agree to sign the BTIA. The question of providing investment guarantee is important and needs to be resolved otherwise EU investors will find alternative destinations to invest in Asia. India also needs ‘data secure’ status from the EU for IT outsourcing in the face of problems with H-1B visas.

For the EU, too, after President Xi Jinping’s term is slated to be for life, much apprehension is surfacing about the kind of world order which China will promote. It has launched the Belt Road Initiative (BRI) which is both political and economic. To facilitate it, China has started a new grouping, 16+1, with 11 members of the EU and the rest from western Balkan collaborating with China. A Chinese company has bought 10 per cent stake in iconic Daimler recently and has made huge investments in other EU member states. The EU is now more circumspect about China’s real motive in Europe which is not clearly visible to them right now. 

In such circumstances when the EU is getting hurt by US protectionism on steel and is suspicious of Chinese designs associated with the progress of BRI in Europe, it is the right time for India and the EU to get closer in order to enhance trade and investment for their own mutual benefit.

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