India’s Deepening Relationship with Europe and China Factor in it

By — Albin Thomas;

The European Commission President Ursula von der Leyen’s visit to India on 24-25 April expanded the European Union (EU) ‘s relationship with India and reinstituted negotiations for a proposed free trade agreement (FTA). The new changes in the relationship reflects the transformations in the geopolitical landscape, particularly increased tensions between India-China and the EU’s intention to reduce its dependence on the Chinese economy. The leaders of both EU and India show an unprecedented political will in trying to establish a solid commercial and security partnership. India needs the EU for strategic and economic reasons to counter China as well as to deal with the slowing growth rate of the Indian economy and growing unemployment. India’s engagements with the EU and the recent visits of Indian prime minister Narendra Modi to individual countries indicate India’s readiness for more engagements and partnerships. The ongoing Russia-Ukraine crisis is leading to significant changes in the international system. It has major ramifications in all the fields, from the global economy to strategic and political relationships with different countries. As a deeply integrated economy, any crisis in the world affects China in multiple directions. China is the largest economy globally at purchasing power parity and the origin point of countless global supply chains. In several ways, China is vital to the functioning of western economies, and Europe is trying to decrease Chinese influence in its economies. 

The Ukraine crisis and the PRC’s position towards Russia and the newly introduced sanctions led to a lot of discussions in the western world. They changed their approach towards China in a significant manner. The economy of China and Europe is considerably dependent on each other in a number of ways, particularly in Germany. The Ukraine crisis has crumbled the EU-China relations, which has been visible in the recent EU-China summit. Like China, India also abstained from voting on the US-sponsored resolution at the United Nations Security Council. However, unlike China, India’s relationship with Europe is expanding in several directions. Ursula von der Leyen’s visit led to the establishment of the India-EU Trade and Technology Council and decided to restart negotiations on India-EU trade and investment agreements by June 2022. The EU views the free-trade agreements with India as providing a secure external market, which is necessary due to the US-China strategic competition. India’s enormous market, economic and demographic size is an underutilised potential for the EU. Strategically, India is essential to the EU because India is a vital actor in the Indo-Pacific and a balancer of China’s expanding influence across the region. The Ukraine crisis reveals that China is reluctant to take any step against Russian aggression, and joint statements of China and Russia indicate that it challenges the existing global order and proclaims the beginning of a new era.

The Recent Trends in the EU-India Relations

The EU is India’s third-largest trading partner with 65.11 US dollars’ worth of goods trades, and it presently denotes 11.1 per cent of India’s total trades. Similarly, India is the 10th largest trading partner, accounting for around 1.8 per cent of the EU’s total trade in goods. The EU and India have many underused opportunities, and there needs to be more enhanced cooperation, particularly in economy and trade. Leaders of both India and Europe made an effort to strengthen their relationship. India focused more on engaging with collective Europe due to the current changes in the international arena. Europe has viewed India and Japan as alternatives to China deepening its relationship with Russia irrespective of western imposed sanctions. President Ursula von der Leyen’s visit to India from 24-25 and Indian Prime Minister Narendra Modi’s bilateral visits to Germany, Denmark, and France are timely and have strategic and Economic Significance. Europe also has a presence of an Indian diaspora, particularly Students and young professionals. Indian nurses and other medical staff have an exemplary reputation in Europe, which will enrich the people-to-people connection.

The total share of India’s goods exports to the EU diminished from 18 per cent in 2001 to 14 per cent in 2020 even though there is an increase in the absolute value of shipments. Currently, India accounts for only 0.9 per cent of the European Union’s total imports, which is opposite to India’s current export growth rate. This reflects that India has tremendous trade opportunities in the EU market, and it currently remains an underutilised market. The EU President’s visit led to the launch of the India-EU Trade and Technology Council. This will enable both partners to resolve trade, technology, and security challenges and strengthen cooperation in these fields between the EU and India. India and the EU agreed that there was a need for in-depth strategic engagement due to the sudden changes in the geopolitical environment. The Trade and Technology Council will give the necessary structure to operationalise political decisions, coordinate technical work, and report to the political level to ensure implementation and follow-up in areas that are important for the sustainable progress of Indian and European economies, according to the ministry of external affairs, the government of India. Earlier the EU signed a similar agreement with the United States, and India-EU Trade and Technology council is the EU’s second such council. The Ministry of Commerce and Industry has planned to enhance its exports of 31 commodities to 200 countries to attain the target of 400 billion US dollar exports in 2021. India considers the EU as a source for technology transfers, and FTA has knowledge sharing and capacity building in different sectors. The Make in India programme and the atmanirbhar (self-reliant) Bharat initiative need more foreign investments and technology transfers, particularly in sustainable development. The India-EU cooperation and the investments pledged by Germany and Denmark are the way to this. The proposed India-EU free trade agreement (FTA) will give more opportunities to both and help India to achieve the above-mentioned goals. Currently, India views international trade as a key component of its economic growth and has already established a Comprehensive Economic Cooperation Agreement with the United Arab Emirates (UAE) and an interim trade deal with Australia. The India-EU FTA is much needed for its economic growth and will give enough potential to achieve the above-mentioned goals.

India’s bilateral engagements with Germany, France and Denmark have enormous significance, and India presents itself as not being isolated and showing its diplomatic strengths. Prime Minister Modi said before visiting Europe that “European partners are important companions in India’s quest for peace, prosperity”. India’s bilateral engagements and summit-level interactions with European countries ensure that India is trying to stabilise its relationship with European countries during the Ukraine crisis. India’s Prime Minister also held submit-level interactions with five Nordic countries named Denmark, Sweden, Norway, Finland and Iceland. Nordic countries are smaller countries geographically but highly advanced economically and technologically. The interactions with these countries also have political significance because of the EU’s consensus-based decision-making system. Recent bilateral relations trends indicate the emergence of multipolarity, which provides more space for countries like Germany, India, and Japan to play a more significant role in the international system, particularly in the Indo-Pacific. Countries like India, Germany, France, and Japan can shape the world order due to shifting geopolitical alliances in Europe due to multiple factors. Moreover, the EU will play a more prominent role in the emerging global order. China’s economic and political interactions will influence the EU and strategic relationships in the Indo-Pacific.

The China Factor

COVID-19 is a health crisis, but it primarily affects economic, political, social and strategic relationships worldwide. The Ukraine crisis has shaken the stability of the EU’s multilateralism and peace in the continent. The Chinese actions and domestic policies for intersecting COVID-19 and the Chinese position towards Russia and western imposed sanctions substantially influence Europe’s economic and strategic relationships. The hardening implementation of the zero-Covid policy, particularly in Shanghai, uncovered the authoritarian nature of the Chinese government. The Shanghai lockdown severely affected several MNCs (Multinational Corporations), including Qualcomm, Apple and General Motors located in Shanghai. The lockdown also affected the world’s most valuable semiconductor producer TSMC (Taiwan Semiconductor Manufacturing Company), because their major production facility is in Shanghai. The zero-covid policy and the subsequent Shanghai lockdown severely affected MNCs and their production. The MNCs particularly from Europe are trying to shift their production centres and regional headquarters from China due to all these reasons. This will not happen in a couple of years, but it will affect the economic interactions between China and other countries.

The second reason that led to the change in Europe’s attitude towards China is the position of the PRC towards the Ukraine Crisis. The PRC has not condemned Russia’s war in Ukraine, even though Ukraine is a major partner of the Belt and Road Initiative (BRI) and provides Beijing with a gateway to Europe. Beijing does not support Western-sponsored sanctions and United Nations resolutions against Russia. The EU- China summit conducted on 1st April 2022 did not make much progress, and there was no joint statement and joint press conference issued after the summit. The EU wanted Chinese assurance that it would not give any assistance to Russia and threatened Beijing with sanctions if it gave any assistance to Russia.

The strategic and economic relationship between the EU and China is facing a number of challenges due to the ongoing Ukraine crisis and the Chinese COVID-19 policies. The EU and prominent European countries like Germany are trying to decrease Chinese dependence on multiple fields, particularly the economy. India’s deepening relationships and new initiatives like Trade and Technology Council are part of the EU’s strategy of decreasing dependence on China and the Chinese economy.

Challenges of India-EU Relationships   

India’s reluctance to condemn the Russian aggression on Ukraine and its abstaining from successive votes in the UN Security Council, General Assembly, and Human Rights Council are the most recently added challenge to India’s relationship with the EU. Moreover, Russia is India’s largest arms supplier in the defence field. India’s import of Russian arms dropped by 47 per cent between 2012-16 to 2017-21, according to Stockholm International Peace Research Institute (SIPRI). Both will remain a strategic challenge to the India-EU relationship. The Indian dependence on Russian arms decreases, which will eventually help India to have a better relationship with the EU. Moreover, countering the Chinese influence in the Indo-Pacific needs India-EU strategic cooperation, and that would help for more comprehensive India-EU relationships in different fields, particularly trade and commerce.    

The successive Indian governments always followed protectionist policies in trade and economy, particularly in agriculture and related products. India has a long history of backlashing the trade agreements by raising domestic issues. The last-minute withdrawal from the RCEP is an example of this. India and the EU have some key differences in tariff reductions, patent protection and data security. This is an economic challenge to a deeper India-EU relationship. The challenges and differences are part of the world, and both parties can overcome these and build a more comprehensive relationship that benefits each other and is suitable for the regional and international community. 

Albin Thomas is a research scholar at the Centre for East Asian Studies, Jawaharlal Nehru University (JNU), India. He is doing research on “Economic Diplomacy of China under Xi Jinping”. He has published articles for Political Studies Review, Australian Institute of International Affairs and ORCA. He has keen interest in Chinese foreign policy, foreign policy of Xi Jinping, economic diplomacy, and cross-strait relations. He can be contacted at albinjth@gmail.com, albin61_isb@jnu.ac.in. LinkedIn:  https://www.linkedin.com/in/albintms  and Twitter: @albinthomas_

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