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India-European Union ties in the age of Donald Trump

LiveMint logoLiveMint 05-07-2017 Wilfried Aulbur

When 20 heads of state, including India’s Prime Minister Narendra Modi, gather in Hamburg for the G20 summit on 7-8 July, all eyes will be on US President Donald Trump’s administration. International leaders will anxiously watch its every move. Questions about the future of globalization and the principle of free trade—which the US has been advocating for decades—will be at the heart of the matter. At their meeting in March, finance ministers and central bank governors from the G20 group dropped the pledge “to resist all forms of protectionism” in their official communique. This was widely interpreted as the first signs of how the Trump administration would upset the global economic order, paving the way for increasing protectionism.

At the same time, it seems, the Trump era has already served as a catalyst for efforts to build deeper relations between countries. For instance, on Modi’s latest visit to Germany, the talks with German Chancellor Angela Merkel went beyond emphasizing the need for a sustainable common strategy for globalization and a strong commitment to the goals undertaken under the Paris climate agreement. They also advocated open framework-based trade relations and closer ties between India and Europe. Modi strongly endorsed Merkel’s vision of the European Union (EU) and committed to resume talks between India and the EU at the earliest to stitch up a free trade agreement encompassing goods and services as well as mutual investment protection. “We are made for each other,” Modi said during that visit, as a gesture of solidarity.

So might the US administration’s policies be an unexpected catalyst for European-Indian relations? The debate within the G20 group on the principles of free trade and the spectre of protectionism is offering new potential on both sides. Until now, many people have ignored the true potential of India’s close ties with Europe. In these current times of turmoil, those ties are a true asset. And there is clearly potential for extending bilateral economic cooperation, leading to important economic gains on both sides.

Since Modi took office, India has been able to push through a number of reforms, such as the goods and services tax. In addition, several large infrastructure projects have been launched to boost India’s growth. As per the US department for agriculture economic research service, based on data collated by the World Bank and International Monetary Fund, that growth rate is expected to be consistently high enough to see India become the world’s third biggest economy by 2030; it is currently the seventh largest. This does not even take into account any additional catalysts such as the free trade agreement between India and the EU, presently on ice. Given this, India’s status as the leading major economy in terms of growth is unlikely to be challenged for years to come.

It is figures like these that make India an exciting destination in particular for European companies, especially those in the automotive business, the chemical and pharmaceutical industry, and the medical technology sector. India’s passenger car market, for example, has already reached a volume similar to the market in Germany—with much more dynamic growth.

India’s size and its continual strong growth make it a market that global companies need to be in, especially given the softening of growth momentum in other parts of the world. Strong collaboration and bilateral trade would also give both India and the EU a needed counterweight to the current challenges that arise from changes currently witnessed in the US.

Another important point to note is that in today’s business environment, the experiences of the Indian market—once thought unique—are increasingly transferable to other countries. With its complexity and its creative chaos, the Indian market is the perfect mirror of today’s Vuca (volatile, uncertain, complex and ambiguous) world—ever more volatile, uncertain, complex and ambiguous. Things that might once have been dismissed as particular to India are now a reality not only in other developing and emerging nations but also in the Western world.

The nuclear phase-out, the refugee crisis, Brexit and Donald Trump’s presidency are but a few examples of how uncertainty and unimagined changes in momentum have gripped the Western world. Against this backdrop, the recipe for business success in India is just as relevant for navigating complexity in other emerging markets as it is in the Vuca world now facing our economies. In a fast-changing world order, it can be combined with a European-Indian approach to foster a more democratic and open global trade and investment regime.

Europe and India are in very different places with regard to the maturity and characteristics of their economies. But they face the same issues and share the same responsibilities in an increasingly globalized world—one where that globalization is facing political and popular resentment, but transnational social, environmental and geopolitical challenges put our economies at risk and demand a global response. In this regard, Modi was right when he stated that India and the EU were made for each other. In order to ensure stability, security and prosperity for the future, their task is to navigate these complexities together. If the US will not play a leading role within the G20 community in order to define a common global approach, then India and Europe should do so.

Wilfried Aulbur is managing partner (India) and a member of the supervisory board at Roland Berger.

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