India-EU trade

Context- The recently concluded 15th Summit of India and EU, the broad consensus that emerged is to strengthen the EU-India Strategic Partnership.

India-EU areas of convergence-

• India’s largest trading partner, while India is the EU’s ninth biggest trading partner.
• India is among the few nations that run a surplus in services trade with the EU.
• Both share similar ‘universal values’ of democracy, pluralism, respect for international institutions and multilateralism.
• Share common interest in tackling climate change, and building trade.

However, India’s exports in the competitive EU market are not doing well such as-

• Agriculture Commodities– Apart from processed rice, the share of India’s agriculture commodities in EU’s import is invariably less than 3 per cent.
• Marine products – EU imports more from ASEAN than India despite its longer coastline.
• Labour intensive products– Bangladesh exports more such products like apparels and leather products than India.
• pharmaceutical sector- EU imports more by-products of same (chemicals, rubber plastic products) from China and ASEAN than India

What are the reasons for lower share of Indian export in the EU market?

1. High production cost in India leading to higher import cost in EU market compared to other countries;
2. High logistics costs and poor connectivity that make Indian exports uncompetitive in EU market.
3. Inefficiency in trade facilitation measures leading to high cost of export or consignments being rejected, which has spill-over effects.
4. India’s exports being subjected to higher para-tariff in comparison to other countries.
5. India’s exports not meeting the European standard. Indian products have been rejected/ banned due to failure to comply with EU standards and this legacy is affecting India’s exports.

How India can boost EU trade?

1. Reduction on production cost– Advance logistics/trade facilitation measures can keep the production cost low which increases the competitiveness.
2. Better infrastructure– This leads to lower logistic cost and faster and direct connectivity of consignment to Europe.
3. Enhancing connectivity– Facilitating people’s mobility and connectivity to improve mutual understanding and create opportunities for innovation and growth.
4. Following Chinese strategy– Indian products have been rejected/banned due to failure to comply with EU standard. On the flip side, China produces goods complying with European standards at higher price than what they produce for African/Indian market. This way, China protects their brand value and manages cost.

Way forward-

• Indian producer needs to pay much more attention to complying with specific EU market standards.