A new indispensable power

No other capital should matter as much to New Delhi as Brussels

The president of the European Commission, Ursula von der Leyen, is visiting New Delhi this week. She arrives on the heels of British Prime Minister Boris Johnson’s two-day visit. Mr Johnson got the full treatment — a side trip to Gujarat, including an ill-judged photoshoot with a bulldozer. Ms von der Leyen, while she will of course meet the president and the prime minister, is not being given quite lavish a red carpet.

Yet the fact is that post-Brexit Britain is not as important for India’s future economic trajectory as the European Union (EU). In fact, the EU might be more vital for Indian economic interests going forward even than an inward-looking United States.

Britain’s eagerness to close a trade deal with India — visible in Mr Johnson’s instruction to “get it done” by October, versus Prime Minister Modi’s more temperate statement that “we have decided to make all efforts to conclude the free trade agreement by the end of this year” — reflects the fact that almost six years after the British electorate voted to leave the EU, little has come of the promise of “Global Britain”. Brexiteers like Mr Johnson desperately need something to show off to their supporters back home.

Yet Indian negotiators have their own set of incentives — in particular, the need to demonstrate to the world that India has not in fact turned its back on trade. Whitehall is more interested, at the moment, in the headlines than the substance; and their Indian counterparts will be willing to oblige them with a strictly limited trade deal, perhaps a little less expansive even than what was recently signed with the Australians.

Negotiating with the EU is an entirely different kettle of fish. The EU’s mammoth bureaucracy and its internal complexity mean both that it is more difficult to conclude an agreement — but also that such agreements wind up being more comprehensive, and more reliable. Ms von der Leyen, unlike the embattled Mr Johnson, does not need the photo-ops. Nor will Brussels, unlike Whitehall, be satisfied with a few concessions on alcohol and fruit.

Illustration: Ajay Mohanty

The distance between the EU and India on multiple regulatory and economic fronts — from digital regulation to intellectual property to phytosanitary requirements — is vast, but not unbridgeable. Brussels and Washington DC have a similarly long list of trade irritants, which they hope to address through the creation last year of a new “trade and technology council”, that the US administration describes as a “framework to promote cross-agency, whole-of-government coordination on the US and EU approaches to key global trade and technology issues”. It has been reported that a similar proposal has been made to New Delhi.

Indian decision-makers should seize the opportunity. The biggest hurdle to a deeper economic relationship with the bloc has consistently been regulatory divergences; and the biggest hurdle to regulatory convergence has been the fact that in both the EU and India, “behind-the-border” decisions are taken in different administrative silos from those responsible for trade and integration. There is simply no institutional basis at the moment for EU-India co-operation on regulatory convergence and economic integration. An India-EU Trade and Technology Council could thus fill a long-identified gap.

It might also help nudge India’s trade negotiations away from its historic capture by various lobbies and class interests. It is objectively absurd and subjectively infuriating that entrenched and well-connected legal services firms in India are able to torpedo comprehensive trade agreements purely to protect their well-paid guilds from any hint of foreign competition. Nor should migration of highly skilled workers be the number one concern of any Indian government, given the tiny proportion of such individuals in the Indian workforce. The primary concern should always be market access for labour-intensive sectors and favourable investment conditions.

And it is investment that is the reason that convergence with the EU is so important. It is necessary for Indian policymakers to finally accept that public funds in India will not be sufficient to build an infrastructure of the scale and quality necessary to render the economy environmentally sustainable, globally integrated, and competitive. Funds from the People’s Republic of China come with strings attached, and the Japanese are already committed to India. Global institutional finance is vitally necessary to supplement these other tapped-out wells of funding. The EU and several of its member states punch above their weight when it comes to institutional finance, partly thanks to the power of Brussels’ rule-setting, partly thanks to the sheer mass of European savings that are looking for external returns.

It is worth remembering the size of India’s infrastructure financing deficit. The government’s aspirational National Infrastructure Pipeline would cost in aggregate anything between $1.5 trillion and $2 trillion over the next few years. Back of the envelope calculations suggest that meeting these requirements would require tripling — yes, tripling — India’s annual infrastructure expenditure. Europe is the world’s major reserve of institutional capital, and if India is to address its investment deficit, then convergence between the two economies is vital.

While it is tempting to view the visits of Mr Johnson and Ms von der Leyen as being primarily about wooing India in the wake of the Ukraine crisis, it should be clear now that this crisis is simply not the primary concern for any of the parties in question. Mr Johnson needs the right headlines to prop up his Brexit Britain adventure. India needs an economic jolt to revive a faltering growth engine. And what do the Europeans want? Well, Brussels is fortunately bureaucratic enough that it puts its deepest desires in writing, often in tedious detail. Most

obviously, it needs India to partner with the EU on climate action and on Indo-Pacific connectivity. Fortunately, these desires are also very much in India’s interest.

The EU was already a regulatory superpower. It was the first mover on data privacy and on corralling the revenues from Big Tech. It will, over the next decade, be equally influential when it comes to channelling green finance and to regulating new technological frontiers in sectors like energy. Successive crises have merely deepened European integration and enhanced the EU’s vigour. No other capital should matter to New Delhi in the 2020s as much as Brussels.

The writer is head of the Economy and Growth Programme at the Observer Research Foundation, New Delhi