According to a study from Germany's Bertelsmann Stiftung foundation that was published on Monday 29 May, the EU and India would have much to gain from a bilateral free trade agreement, even if some sectors would lose out. Furthermore, this agreement would be a strategic step for the EU in conquering the Asian market.
The EU, which is trying to be more oriented towards Asia given the growing uncertainty of its relations with the USA, and India, the dwarf of global trade despite the size of its economy and dynamism (it only accounts for 1.6% of world goods exports), would clearly benefit from a free trade agreement in terms of gains in GDP.
In 2016, their bilateral trade in goods stood at €77 billion. India is the EU's ninth biggest trading partner, while the EU is India's biggest trading partner.
According to the study, there is great potential in lifting tariff and non-tariff barriers between the two partners. This would enable "considerable welfare gains" to be made, the full effect of which would be felt 10 to 12 years after the agreement enters into force.
The agreement would enable India to gain 1.3% of GDP annually – in other words, a €25.6 billion increase on the basis of 2015 GDP. For the EU, the agreement would enable an annual average increase of 0.14% of GDP. Based on the EU's GDP in 2015, this represents an increase of €21 billion.
EU countries would benefit at different levels. Germany, India's biggest trading partner within the European bloc, would be the main winner, with a €4.6 billion gain per year – ahead of the UK (€4.8 billion per year). By contrast, the annual GDP gain for Croatia would only be €0.02 billion. However, no EU country would suffer negative effects.
On the sectoral level, the German automobile, and machinery and equipment sectors would be the biggest beneficiaries of an agreement, with rises in added value of €1.5 billion and €1.4 billion respectively. By contrast, the German business services, clothing and textiles sectors would be the biggest losers, with their added value recording losses of €511 million, €388 million and €341 million respectively.
On the Indian side, the Indian business services and textiles sectors would be among the biggest winners from the agreement, with their added value increasing by €6 billion and €3 billion respectively. The Indian automobile and minerals sectors would be the main losers, with losses in added value of €1.5 billion and €1.1 billion respectively.
Beyond the gains in GDP, a free trade agreement with India would be a strategic step for the EU in its conquest of Asia because it would send an important signal for free trade in general, and it would be an important strategic step for improving market access for European businesses to dynamic markets in Asia, the author of the study, Cora Jungbluth, states.
For India, this agreement would mean greater economic openness, but it would also present risks for a newly industrialised country. While the agreement could have a positive effect on innovation, productivity and growth, the least competitive and least productive sectors could have difficulty in standing up to pressure from increased international competition.
This is why, Jungbluth states, compromises are needed from both sides in order to bring progress to these negotiations that were launched in 2007, but that were put on hold after 16 sessions of technical level talks (the last in May 2013), on the eve of the general elections in India in spring 2014 that brought Narendra Modi to power. At that time, neither party was able to iron out the differences on several key chapters (see EUROPE 10931).
The EU should be particularly aware of its responsibility towards India as an emerging economy, and should allow India sufficient time and flexibility to address the structural changes resulting from this trade agreement, the study concludes. (Original version in French by Emmanuel Hagry)