COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 26.06.1996 
COM(96) 275 final 
COiyDVlUNICATION FROM THE COMMISSION 
EU-India Enhanced Partnership 

Table ôf Contrats s " 
1. The setting for current relations 3 
1.1 India: economy, society and domestic politics 3 
1.1.1 An overview of India 
1.1.2 Economic reforms and their impact 
1.1.3 Democracy in a multi-cultural society 
1.2 India in Asia and the world 5 
1.2.1 India's global position 
1.2.2 India, Asia and South Asia 
2. EU-India mutual interests 6 
2.1 International political issues 6 
2.1.1 Global issues 
2.1.2 Regional stability and security 
2.2 Trade and economic issues 7 
2.2.1 Liberalisation for growth, trade and investment 
2.2.2 Removing additional barriers and improving the 
framework for trade and investment 
2.2.3 Increasing awareness and information 
2.2.4 Sectors of specific interest 
2.3 Building a human dimension 10 
2.3.1 Supporting social development and basic services 
2.3.2 Opportunity creation 
2.3.3 Reinforcing democracy in diversity 
2.3.4 Encouraging sustainable development 
3. Reinforcing partnership 12 
3.1 Points of focus 12 
3.1.1 Intensifying the political dialogue 
3.1.2 Trade and investment facilitation 
3.1.3 Helping India face structural adjustment 
3.2 Steps in the new partnership 13 
3.2.1 Laying the groundwork 
3.2.2 Working through the priorities 
3.2.3 Increasing cultural understanding 
3.2.4 Institutional framework 
4. Conclusions 15 
Annexes 16 
1. Past EU-India relations 16 
2. The Indian economy 20 
3. Population 22 
4. Evolution of Indian external trade 23 
5. Evolution of foreign investment in India 24 
6. Evolution of EU-India trade relations 25 
7. India: international development assistance for 1995-96 (indicative) 27 
2 
I 
1.1 India: economy, society and domestic politics 
1.1.1 An overview of India 
India catches the attention with its cultural diversity, democratic tradition, and recently 
renewed economic dynamism. A long-standing partner1 of the European Union (EU)2, 
India is a rising force, with the eleventh largest economy in the world3, a Gross Domestic 
Product (GDP) of 212 billion ECU4 (1995) and the second largest population in the world 
with at least 900 million inhabitants5 (the EU has 370 million) living on a land area of 3.3 
million km2 (the EU is 3.2 million km2). 
1.1.2 Economic reforms and their impact 
The substantial policy changes undertaken since 1991, have promoted an expanding 
export-oriented economy, as well as increased private sector confidence. From 1994 to 
1995 alone, external commerce grew by 20%6, and approved foreign investments rose to 
an annual figure of 3.5 billion ECU in 1994, compared to just 129 million ECU in 19917 
In 1994, Indian economic growth reached 5.5%8 and there is optimistic talk of forthcoming 
economic take-off. Industrial production for fiscal year 1994-5 increased faster at 8.6%, 
and industry now represents some 30% of total GDP9. Services account for approximately 
42% of GDP, with the fastest growth being recorded in transport, commerce and the 
financial sectors. India already has developed a considerable high-technology capacity in 
certain sectors such as space and computer software, which holds out the prospect of 
growth in these high value-added niches. Indeed, it is also increasing exports to the EU10 
in a number of advanced sectors eg chemicals, engineering and electronic products as well 
as machinery and transport materials11. 
However, the economy is not yet reaching the growth rates of nearly 10% recorded in 
several parts of East and South-East Asia. Also, trade and foreign investments are growing 
from a low base and in 1994 exports represented just 9.5% of total GDP, and India's 
foreign direct investments were only slightly higher than Malaysia's (population: 19 
million). The domestic savings and investment rates (both around 21%) are also not yet 
strong enough to support a major boom, and public sector reforms have been slow with a 
public budget deficit equivalent to 6.7% of GDP in 1994. This has also contributed to the 
external debt of some 73 billion ECU12. Hence a number of macroeconomic challenges are 
still on the agenda. 
1 See Annexe 1 
2 Please note that for the sake of transparency to the wider public, the term EU is systematically used. In 
some cases the term "European Community" would be legally more exact. 
I Sec Annexe 2, Table 1 
4 In all cases where the original statistics are in US dollars, the exchange rate used is 1 ECU= $ 1.3. Sec 
Annexe 2, Table 2 for past Indian GDP 
5 See Annexe 3, Table 1 
6 See Annexe 4, Table 1 for the overall trend 
7 See Annexe 5 
8 See Annexe 2, Table 3 
9 See Annexe 2 Table 4 
10 For trade balance, see Annexe 6 Table 1 
II See Annexe 6 Table 2 
12 See Annexe 2 Table 5 
3 
1.1.3 Democracy in a multi-cultural society 
India has earned ils title of the world's largest democracy, holding regular elections since 
1947, having a free press, a firmly apolitical army and a well-established rule of law, backed 
by an independent judiciary that defends the rights of citizens and business. As a result it 
has enjoyed considerable domestic political vitality for a country of its size and diversity, as 
was again proven with the general elections this year. 
This is no mean feat, given that India, a secular society, is a cultural cauldron with 
considerable regional and religious variety. Indeed, India is the birth place of numerous 
religions, notably the Hindu and Sikh faiths as well as Buddhism and Jainism, and is also 
home to an estimated 130 million Muslims and 20 million Christians. However, this 
diversity produces social tensions and (ethnic, caste and gender) barriers, which the 
Government of India (Gol) has tried to diffuse by a long-standing policy of positive 
discrimination measures, backed up in the constitution and a process of decentralisation. 
Economic growth, if widely spread, could help to reduce such tension. However, India's 
2% annual demographic growth reduces the impact of economic growth and places a major 
strain on provision of many basic public services. This challenge is being met in some 
Indian states, where female education is higher and family planning has effectively 
decreased birth rates. Nevertheless, the challenge remains elsewhere, as even if India is 
home to over 10 million university graduates - a tremendous achievement by any accounts -
average literacy is 64% for males and 39% for females, the latter being the priority targets 
in family planning. 
India is thus a country of great contrast. The reforms have bolstered the creation of a 
'consumer class' (some 150 million13), but average annual per capita income is just 235 
ECU, and poverty is still a problem (touching some 210 million people14). India therefore 
faces a major development challenge, with malnutrition, child labour (estimated as affecting 
17 million children15), and relatively low life expectancy (61 years16). Indeed, India's rural 
society (over 70% of its population) faces upheaval as population growth places a strain on 
the many monsoon-dependent subsistence holdings (average land-holding is under 1 ha. per 
farm family). 
The renewed Indian dynamism therefore still has to overcome a number of challenges to 
fulfil its full potential. 
13 Not on a par with Europe's middle class, this group of people has nevertheless created a consumer goods 
market according to the National Council of Applied Economic Research, India 
14 Source: the National Council of Applied Economic Research, India 
15 Source: the International Labour Organisation (ILO) 
16 See Annexe 3 Table 2 for further population-related data 
4 
1.2 India in Asia and the world 
1.2.1 India's global position 
India has long played an important international role in the Non-Aligned Movement. This 
stance has been complemented since 1991 India by a multiplication of links with the 
developed world, including the EU. Military co-operation with Russia continues, but trade 
has decreased substantially. Political relations with Washington remain subject to 
American concerns over the possible development of nuclear weapons in the South Asia 
region. This is fed by India's explosion of a nuclear device in 1974, its development of 
long-range missiles capable of carrying nuclear warheads, and non-signature of the Non-
Proliferation Treaty (NPT). Japan has gained in importance, and is currently the largest 
foreign aid donor to India, (20% of total17), although almost all its aid is in the form of 
loans, mainly for infrastructure projects. 
Its regular participation in United Nations (UN) Peace-Keeping Operations, role in 
establishing the World Trade Organisation (WTO), and high-profile positions in UN 
conferences such as Beijing, Cairo, Copenhagen and Rio have been further signs of 
reinforced international commitment. 
1.2.2 India, Asia and South Asia 
India has been keen to build up its political and economic links with the rest of Asia, 
recognising that the changing economic power in the region is having an impact on 
geopolitical relations and that its own economic growth depends on regional political 
stability as well as vice-versa. The recent decision by the Association of South-East Asian 
Nations (ASEAN) to make India a full dialogue partner is therefore an important step in 
India's move towards Asia allowing it to participate in the economic and political 
discussions of the ASEAN Post-Ministerial Conference, and now also in the Asia Regional 
Forum. 
In South Asia, India's relations with neighbouring states have not always been easy, as seen 
by its three wars with Pakistan (1947-9, 1965, 1971). Skirmishes have continued with 
Pakistan, even recently (February 1996). On the other hand, the border conflicts with 
China have calmed following the Indo-Chinese agreement on recognition of existing 
frontiers, Indo-Nepalese relations have taken a step forward with agreement on water 
sharing, and India enjoys easier relations with Sri Lanka following increased Indian 
surveillance of the Palk Strait. Relations with Bangladesh have also improved, although 
some problems, mainly linked to water and refugees, still remain. 
In contrast to many other parts of the world, there is a relatively low degree of economic 
and political co-operation in the South Asia region, which both explains and is explained by 
the tension. Although the South Asian Association for Regional Co-operation (SAARC) 
has been in existence for 10 years, total official trade among SAARC countries is only 
equivalent to 3.4% of their total world trade compared to 24% for intra-regional trade 
among ASEAN countries. However, the entry into force of the SAARC Preferential 
Trading Arrangement (SAPTA) in December 1995 should help trade by reducing tariffs on 
226 items including commodities. If fully applied, this will constitute a considerable change 
in intra-regional trading practices. 
17 For aid breakdown, see Annexe 7. Tables 1, 2 and 3 
5 
2. EIMndïfl mutml interests 
Tiie ( 'o-operation Agreement between the European Community and the Republic of India 
on Partnership and Development as well as the accompanying EU-India Joint Statement 
on Political Dialogue outline a number of areas where it is possible to act together. Within 
this framework, the following areas are considered particularly important in economic or 
political terms for both partners. 
2.1 International political issues 
2.1.1 Global issues 
Europe and India both face the challenge of maintaining a peaceful and secure international 
environment. Given the evolution towards greater inter-dependency any decision taken by 
one party is likely to have a direct or indirect effect on the other. Furthermore, the number 
of local or regional issues that are recognised as having an international impact are much 
larger today than before. A deeper EU-India dialogue as a part of the global process can 
therefore help to establish the mechanisms needed to meet these challenges. 
Arms' control is naturally one issue of interest. Joint examination of conventional arms 
limitations, and control, non-proliferation and disarmament of weapons of mass destruction 
(nuclear, chemical, biological, ballistic missiles) would be a first step. After all, there are 
plenty of old and new items on the international agenda with the Non-Proliferation Treaty 
(NPT), the Comprehensive Test-Ban Treaty, the Cut-off Treaty, the reinforcement of 
international nuclear safeguards, the Chemical Weapons Convention, the Biological 
Weapons Convention, ban on anti-personnel mines, transparency in armaments, as well as 
the control of sensitive dual-use goods and technologies. In all these issues there is much 
to be gained from a closer EU-India understanding, with the aim of promoting a safer 
global security environment. 
There is also a need for co-operation in meeting the environmental challenges outlined by 
the 1992 Rio Earth Summit. A strengthened EU-India partnership stands to enhance 
mutual appreciation of the manner in which issues such as climate change, conservation of 
biodiversity, pollution prevention, environmental aspects of trade and other important 
topics are approached, and need to be included in an enlarged concept of world security. 
The key position of large countries like India in helping to bring about a substantial 
reduction on global C02 emissions in order to stabilise and subsequently reverse changes in 
climate will become more evident in the future. 
Intimately linked to this is the wider issue of energy resources and security of supply in 
which both the EU and India have a direct interest. If India follows traditional patterns, 
then rapid GDP growth will result in much greater total energy consumption (eg the EU 
consumes 14 times more energy per capita than India). Simultaneously with other 
emerging economies and many Western countries, India will face a substantial increase in 
demand for non-renewable imported energies, and risks producing ever more CO2 
emissions, raising geopolitical and global environmental issues, requiring a concerted search 
for renewable alternatives. 
Both the EU and India also face the threats posed by international crime, terrorism, and 
drugs trafficking. Given that these illicit activities benefit from their ability to change 
countries rapidly, reinforced co-operation is appropriate here. The same is true for the 
control of illegal immigration flows. 
The EU is thus ready to be a partner in India's integration into appropriate international 
bodies, so long as India accepts the international responsibilities and Treaties that befit a 
major world power. 
2.1.2 Regional stability and security 
In addition to building globally reassuring structures to promote peace and security there is 
a need for similar action on the regional and local level. Even a perceived risk can for 
instance harm investment by creating an impression of uncertainty and may divert resources 
from more productive uses. Furthermore, conflict (especially when combined with the fear 
of escalation) may have repercussions on the world economy, as witnessed during the Gulf 
War. Hence, the EU has a very direct interest not only in what happens on its own borders 
but also in the situation in South Asia - and vice versa. 
Also, although there is no desire for European-style regional integration, India is interested 
in participating in the wider Asian co-operation process, and the EU can support this, 
drawing on its own experience of using economic integration to secure political stability. 
Furthermore, both Europe and India need to explore ways of reducing tensions with their 
own neighbours, tensions that are sometimes fed by false images of cultural and religious 
differences. Each therefore can learn from the other, and help to defuse issues that may 
otherwise disrupt good relations and world security. 
2.2 Trade and economic issues 
2.2.1 Liberalisation for growth, trade and investment 
The world economy is not a zero sum game. Hence it is in the EU's interest to see high 
rates of growth in India and vice-versa. For each to benefit fully from the other's growth, it 
is important to tackle outstanding barriers to trade and investment within the WTO. As 
India presently accounts for just 1.3% of EU external trade - much of this in low added-
value products - there is substantial room for expansion. Following dialogue with the Gol, 
the Commission has thus identified issues in trade and investment, where action could be 
beneficial. 
Seen from Europe, and despite recent changes, India's tariffs remain high. Furthermore, 
many of the recent reductions have not been bound with the WTO. India has also been 
using the Balance of Payments protection clause to retain extra protection for certain 
sectors, especially consumer goods, where taxes substantially increase import prices. Even 
major export sectors like textiles and clothing are still protected. Naturally, the EU is keen 
for these barriers to be tackled in a multilateral context. India itself would benefit given 
that increased competition would force domestic producers to increase productivity and 
efficiency, thus enabling greater export capacity. 
There is also a question of direct public sector intervention in many industries. Where this 
involves public subsidies to companies, the market may be distorted, discouraging efficient 
competition (both foreign and domestic). This is important, as India wishes to attract and 
secure long term investors, especially in basic infrastructure, such as energy, water, 
transport and communications. Europe has undergone a process of liberalisation in many 
7 
of these sectors and would be willing to exchange its experiences with India, and may also 
be able to give practical support to Indian liberalisation and public service restructuring. 
Furthermore, the EU can provide complementary expertise, eg as regards renewable 
energies. 
Liberalisation needs to touch all industrial sectors and even government procurement habits 
if India is to reap the full gains of growth. 'Buy national' policies are costly to the public 
purse, do not guarantee the best possible public service, and limit competition-induced 
productivity gains in key sectors. On this, the Commission would be happy to discuss a 
wide reciprocal opening either in the context of the WTO Agreement on Government 
Procurement, or on a bilateral basis. 
As efficient financial, telecommunications and transport services are the mainstay of 
growing economies, liberalisation of these sectors can also be used to spur rapid growth. 
The EU is naturally prepared to collaborate in this process, as well changes in specific sub-
sectors such as insurance and maritime transport. Collaboration on these issues could then 
stimulate new opportunities in, for instance, information technology. 
In a similar vein, the understandable Indian sensitivity on the implications for internal 
stability of restructuring agriculture, although justified, must not prevent a progressive 
policy change. The existing agricultural system, even with technological improvements, 
will be incapable of keeping up with demographic growth and rising living standards, 
especially if some Indian farmers are to take advantage of export opportunities. Naturally 
the EU is prepared to work with India on promoting and diversifying commerce in 
agriculture, as well as on aligning sanitary and phytosanitary standards. 
2.2.2 Removing additional barriers and improving the framework for trade and investment 
There are still a number of horizontal trade impediments raised by both sides such as those 
arising from application of customs, investment and consumer protection rules. Many of 
these issues can be handled by bilateral co-operation, for example the reduction of technical 
barriers or the mutual recognition of conformity assessment and of testing and certification 
procedures. But more substantial issues clearly need to be tackled in the framework of the 
WTO 
This being so, it is worth jointly considering common interests on a large number of issues 
that may at some time figure on the WTO's agenda, and the Commission considers that co­
operation with India should be reinforced on WTO objectives. Indeed, building on 
successful past experience with India, there is clear room for further intensifying this 
collaboration by allowing ad hoc consultations when necessary on substantial issues. 
As regards past multilateral commitments, under the Uruguay Round, India has promised 
important measures in improving the protection of Intellectual Property Rights (IPR). The 
sooner that India adopts the necessary legislation (not just the establishment of a 'black 
box', but full application to all sectors), the sooner investors will feel assured. Indeed, India 
should also consider adhering to other, stricter, existing international IPR codes to further 
reinforce the sense of security. Most importantly, when legislation does come into force, it 
must be backed up by effective implementation and on the ground control. A joint EU-
India programme is already envisaged to reinforce the intellectual property system and its 
alignment with international standards. Similar work has already started in institution 
building for standards and quality, and can be further advanced (eg with 
awards/campaigns). Help could also be given in the regulation of utilities. 
2.2.3 Increasing awareness and information 
Barriers to trade and investment are not only the result of market structure. There are also 
important cultural and information barriers which need to be overcome for partnerships to 
flourish and business opportunities to multiply. Hence the Commission will seek to use all 
the necessary means, including information technologies, to improve business awareness 
and information flows, also for small and medium sized enterprises. 
Indeed, the Commission encourages all forms of links between civil society, educational 
establishments and the media, precisely to build up a pool of mutual understanding. 
Exchanges of experience and joint activities on substantive issues such as vocational 
training are naturally part of this. 
To provide a common backdrop for these efforts, it would be useful to hold a regular of 
exchange views on economic developments in the EU and India. This could include 
discussions on the regulatory framework, investment promotion, and industrial policy. 
2.2.4 Sectors of specific interest 
Europe and India can work together to mutual benefit in a number of sectors. 
One clear example is co-operation on science, technology and technology transfer, as co­
operation here promotes an enabling environment for co-operation in general, as well as 
helping the search for scientific solutions to global problems. Science and technology 
(S&T) co-operation will therefore be actively encouraged under the Research and 
Technological Development Framework Programmes. This co-operation should mobilise 
complementary skills from across Europe and India, supporting innovative research and 
promoting the development of human and institutional capital. This reflects the way that 
the EU is taking a new look at means of enhancing S&T co-operation given India's status 
as an emerging economy. 
In another example, both Europe and India have an active interest in ensuring that all 
groups and countries have access to the 'Global Information Society'. India and the EU are 
interested in taking advantage of, and developing these advanced technologies, and each 
can be a valuable source and partner for the other. Bodies such as the Software Services 
Support and Education Centre (3 SE) can be used to improve co-operation in this market 
of the near future, and help ensure full participation in the global efforts to implement the 
information society. 
Similarly existing work in other areas can be built upon by establishing a closer bilateral 
dialogue to overcome problems identified by the business community, and encourage 
industrial co-operation, trade and investment facilitation. The list of sectors should be 
determined in function of EU and Indian interest, and could include: 
financial services (especially insurance); 
transport services and equipment; 
infrastructure, energy (renewable, clean technologies and nuclear safety); 
capital goods and heavy machinery; 
the automotive sector (including parts and production); 
space technologies (including the Global Navigation Satellite System); 
agriculture; 
textiles. 
2.3 Building a human dimension 
2.3.1 Supporting social development and basic services 
The European Union firmly believes that social development must be a parallel objective to 
economic development, and that it is not possible to ensure sustainable economic growth 
without taking into account the social dimension. Furthermore, Europe has a fundamental 
interest in India making a success of its structural adjustment process. Hence the need to 
support the process by focusing resources on basic services where the Gol itself has already 
established a firm policy orientation. 
In terms of education, without widespread basic literacy skills, the poor will have difficulty 
in obtaining better paid work, and the country as a whole will have struggle to meet the 
demand for skilled labour, and hence higher growth rates. Thus the recognised need to 
place great emphasis on education and practical skills, as well as to focus in particular on 
primary and female education and training. Indeed, greater female education will release 
the potential of 50% of India's population to contribute in all spheres of life. Similarly, a 
healthy work force contributes to an increase in the quality and motivation of the work­
force. Hence the need for better basic health services as well as health education. 
Improved education and health will then contribute to cutting the continued and 
unsustainably high birth rate. 
There is a growing understanding of a socially-just economy, and that the respect of 
fundamental social rights is a positive factor for economic well-being. India and Europe 
can work together to ensure the respect of freedom of association, non-discrimination and 
elimination of forced and child labour. These issues, which are closely linked to poverty, 
can only be progressively tackled by a multifaceted approach. Both sides have experience 
of these problems and a dialogue can be used to build positive programmes of action to 
help tackle the problems at their root. 
In all these areas the EU and India can exchange experiences, and work together. 
2.3.2 Opportunity creation 
As a complement so as to help meet the challenges posed by the modernisation of industry 
and to develop the resource base of the country in line with Gol policy, another area for 
co-operation could be employment generation activities and related social issues including 
the elaboration of an appropriate social safety net. This may also link in to rural poverty 
alleviation projects, and self-help projects generated by local groups. 
The EU already has experience of the problems produced by liberalisation, and recognises 
that without this human dimension being added, India will have difficulty in opening its 
markets at fast enough pace to attract large-scale investment and rapid growth 
2JL2 Reinforcing democracy in diversity 
Given the extent of shared European and Indian values, any solid relationship cannot be 
built without fully taking account of the human dimension. 
10 
One of the cornerstones of these shared values is a belief in democracy, where the EU and 
India face similar issues such as building democracy in multi-lingual, multi-religious, multi­
cultural environments and have been examining how to improve co-operation between 
different levels of decision-making. 
Europe and India also have much to learn from each other when it comes to empowerment 
and development of dynamic local democracy. Indeed empowerment is also important 
when it comes to developing the economy, dispensing basic services and wisely using 
international assistance funding. 
2.3.4 Encouraging sustainable development 
Environment and development are closely linked. However, the domain has broadened in 
recent years as the need to link human and economic aspects has become more apparent if 
sustainable development is to be achieved. Pursuit of an equilibrium between economic 
growth, social stability and environmental conservation will become more important and 
discussion on the path to follow should be encouraged. Sustainable development as a 
concept affects not only natural resources, but entails a continuing reappraisal of the 
manner in which environmental criteria are taken into account in all other areas relevant to 
the EU-India partnership. 
An enhanced partnership with India to consider loss of biological diversity, sustainable 
management of natural resources, clean energy production, pollution of air, water and soil, 
the urban environment, waste management, clean water supply, the application of clean 
production technologies and various other issues of mutual interest will be pursued. For 
example, in the WTO's Committee on Trade and Environment India and the EU could 
usefully hold a constructive dialogue. On the bilateral level this implies a continued 
exchange of information on environmental policies, with particular regard to environmental 
measures likely to have an impact on trade relations. 
11 
3.1 Points of focus 
3.1.1 Intensifying the political dialogue 
Clearly we must continue the dialogue on global and regional issues of concern 
Nevertheless, there is a need to go beyond the formal exchange of speeches, and to create a 
series of working groups in which detailed dialogue can be held. These working groups 
can then lead to some form of substantive action or decision, or agreement. In this case the 
dialogue will not be on purely political issues, but may well spill over into technical 
assistance and trade. With this in mind, the Commission considers that sector arrangements 
and agreements could usefully be explored on, for instance: 
dual-use products; 
drug precursors; 
money laundering. 
All are commercial issues, but which are closely linked to political questions. 
Furthermore, and given that some form of co-operation may be possible, it would be worth 
looking more closely at: 
climate change; 
the cultural dimension. 
3.1.2 Trade and investment facilitation 
Our aim must be to increase two way flows of trade and investment substantially. This 
implies considerable trade and investment facilitation work, and promotion of business to 
business contacts, which again implies that our relations need to go beyond the formal 
periodic meetings. 
Indeed, there are many sectors which could benefit from an integrated sector approach that 
set out to examine all the barriers that exist, negotiate their elimination on a Most Favoured 
Nation basis, perhaps focus technical assistance, and maybe conclude some sector 
agreements or arrangements. Trade and investment promotion could be dealt with in one 
group, whilst a number of industry-focused groups could be established in function of the 
interests expressed by the Member States, business and the Gol. Such sectors may include: 
transport (especially maritime transport); 
telecommunications; 
energy; 
agriculture. 
3.1.3 Helping India face structural adjustment 
As India has to make considerable efforts to meet structural adjustment, so it is only right 
to help limit the impact of this on the poorest part of the Indian population. As such the 
Commission will continue to support health and education, especially for women 
However, European development co-operation must fit into an overall concerted policy 
framework if it is to be effective. For this reason a detailed sector dialogue on the policy 
lines, linked to the co-operation, needs to be maintained. 
12 
3.2 Steps in the new partnership 
3.2.1 Laying the groundwork 
In the framework of the co-operation agreement and the joint statement, this 
Communication seeks to build on this basis by stimulating a wide discussion, in order to: 
take stock of current activities; 
establish priority areas for action. 
The Commission invites a wide participation in this discussion and the suggestions made by 
the European institutions on this Communication will clearly be a first major input. 
Furthermore, the Commission proposes the possibility of joint reflections with the Member 
States to look at future challenges in EU-India relations so as to ensure that the EU as a 
whole can draw a maximum synergy from current activities and future developments. 
Business will have a number of chances to make its views known, not least at the planned 
Forum on investment in trade and co-operation foreseen for November 1996. 
The Joint Commission (planned for December 1996) can then endorse a set of priorities for 
action and establish a detailed programme of activities. The Joint Commission will in 
subsequent years be able to review the progress made. 
3.2.2 Working through the priorities 
As soon as priority areas for action have been jointly established on the basis of proposals 
outlined above, it will be possible for the working groups to start their activities. With the 
information collected in the discussions outlined above, each group will be able to establish 
its targets. These targets may include the: 
need to build a better understanding each others position; 
possibility of focusing financial resources to help eliminate a problem; 
utility of negotiating some kind of sector agreement or arrangement. 
The exact number and membership of the groups, as well as the substance of the 
discussions would be fixed jointly by the EU and India. This stage of activity will therefore 
involve considerable trade facilitation, and give greater impetus to the dialogue on detailed 
issues and providing substantive results. 
3.2.3 Increasing cultural understanding 
In parallel with the establishment of working groups, the Commission is keen to help 
extend the EU-India dialogue to civil society (including trade unions and NGOs), the media 
and the academic community. Without this spread of dialogue, the conduct of business and 
politics will always be hampered by a lack of broader understanding. 
This, as was noted in the Commission's proposals of July 1994 for a New Asia Strategy, 
implies a strengthening of Europe's economic presence in Asia requires a heightened 
European profile in Asia. It is not enough simply to do things, the EU must be seen to be 
doing them. Hence, particular attention will be paid to improving the visibility of European 
13 
activities in India, where the sheer size and diversity of the country calls for a special effort 
in strengthening profile. The same is true in the opposite direction, where India's profile, 
and European awareness of the sub-continent, need to be increased. 
In this context the Commission intends to: 
facilitate cross-cultural co-operation initiatives; 
encourage the establishment a network of organisations interested in Europe-India 
relations; 
promote an increased flow of press and media information on Europe in India and 
vice-versa. 
This phase of activity could be usefully complemented by activities launched in the 
European Parliament, Economic and Social Committee and the Committee of the Regions, 
if these institutions find it appropriate. 
3.2.4 Institutional framework 
The resulting series of sector agreements and arrangements are likely to push the existing 
institutional framework to its limit. If and when a clear need to prepare the ground for a 
new Framework Agreement emerges, the Commission will then return to the Council. 
14 
India is an effective, functioning democracy increasingly open to the world. Structural 
reforms are continuously strengthening the Indian economy's ability to face opportunities 
and challenges in an international framework. 
However, there is no room for complacency on either side A number of challenges need 
to be tackled and opportunities seized. This Communication therefore underlines the need 
and means to reinforce relations between the EU and India, expanding on the experience 
gained to date, taking account of the need to adapt to changes in India and the EU, and 
inviting an intensified and more targeted dialogue. 
Indeed, on many points, notably those of an international political nature, the EU and India 
have a shared interest in tackling the challenges together, as both must face the same issues, 
and the growth of inter-dependency means that neither can ignore the choices made the 
other. The scope for increased growth through trade and investment also presents an 
opportunity for each side, and requires assiduous work in tackling obstacles, and promoting 
awareness of the possibilities available. Furthermore, the shared values of India and 
Europe, vitality of cultures, and need for greater mutual understanding, create 
opportunities for cross-learning, imposing an important human dimension on relations. In 
all these ways, the challenges which are of joint interest can become tremendous 
opportunities for joint benefit. 
Bearing all this in mind, the Commission suggests a number of steps to reinforce the 
relationship using the Co-operation Agreement between the European Community and the 
Republic of India on Partnership and Development, as well as the accompanying EU-India 
Joint Statement on Political Dialogue to their fullest. Council and Parliament are therefore 
invited to comment on the analysis and proposals outlined in this text, and the Commission 
will subsequently move forward in the framework of the existing agreement and political 
declaration on the basis of these comments and in light of dialogue with the Gol. 
15 
Annexe L l*ast Ell-India relations 
1. The institutional framework 
In addition to the historical and cultural links between the sub-continent and Europe, India 
was, in 1962, one of the first countries to establish relations with the European institutions. 
These links were formalised by agreements, the first one in 1973 aiming to improve trade 
relations, and the two following including economic and development co-operation, as well 
as trade. 
The current Co-operation Agreement between the European Community and the Republic 
of India on Partnership and Development, in force since August 1994, is a third generation 
co-operation agreement and is particularly broad in scope, covering: 
respect for human rights and democratic principles as an essential element; 
development and diversification of trade and investment in mutual interest; 
encouragement of understanding and strengthening of ties between the two regions 
in respect of technical, economic and cultural matters; 
building up India's economic capability to interact more effectively with the EU, 
promotion of exchanges and communication between business communities; 
acceleration of India's development in particular to support new Indian policies in 
key areas fostering sustainable social progress and poverty alleviation; 
support for environmental protection and sustainable use of natural resources. 
2. Political relations 
Political relations have been established with Troika ministerial meetings since 1982. More 
recently these contacts have been put under the EU-India Joint Statement on Political 
Dialogue, adopted at the same time as the co-operation agreement in 1994, and which 
commits both sides to: 
- defending democracy, human rights, peace and a stable, just, international order in line 
with the UN Charter; 
- reinforced co-operation to promote prosperity, economic reform, liberalisation, free-
trade and economic stability as well as social progress and cultural links; 
- allowing each others' interests to be taken into account in decision-making procedures, 
- a better mutual understanding to increase co-operation on international questions such 
as non-proliferation, the fight against terrorism, drug trafficking, money laundering and 
issues linked to international peace and stability. 
Some positive discussions have already taken place in this new framework, although India 
has been cautious towards European criticism on its human rights record at the UN. Also 
past discussions on non-proliferation have made little progress, as India affirms that the 
Non-Proliferation Treaty would reinforce the privileges of those who have recognised 
nuclear arms' stocks, without actually tackling the need for elimination of the stocks. 
Although the EU has always recognised the need for disarmament, it insists that separate 
fora exist for this issue, and that there is an urgent need to prevent further proliferation. 
For similar reasons the EU has also urged India to facilitate adoption of the planned 
Comprehensive Test-Ban Treaty which is under negotiation, as well as the negotiation of a 
Cut-off Treaty (prohibiting production of fissile materials for weapon purposes). 
16 
3. Trading relations 
In trade terms the whole of the EU is India's largest external trading partner, being the 
destination for 26% of its exports and the origin of 30% of its imports. Nevertheless this 
must be put into perspective, as, looked at from the EU, trade with India is only 1.3% of 
total external commerce. This reflects the relatively modest level value of the commerce, 
which at 14 billion ECU is less than EU trade with Singapore (16 billion ECU) In terms of 
investments, Europe slipped behind the USA from 1991-94 (in 1995: EU 18.4%, USA 
22.1%), with some 1322.4 million ECU of investments in India in 1995 (August 1994-
November 1995). 
The main priority for dialogue and the largest achievement in recent years has been the 
conclusion of the Uruguay Round and the establishment of the WTO. Europe and India 
played an important part, and established a close and successful collaboration in Geneva on 
a bilateral and multi-lateral level. 
On a bilateral level, a Memorandum of Understanding concerning the export of Indian 
textiles to the EU was agreed in December 1994. This increases the flexibility of the 
quotas applied to certain textile imports in the phase-out period agreed under the Uruguay 
Round's Agreement on Textiles and Clothing. India has committed itself to some 
liberalisation of its domestic textile markets, although the quota system currently in place 
seems less than adequate. Furthermore, in Maritime Transport, a bilateral agreement is 
being considered with India. 
The EU has also recently revised its Generalised Schema of Preferences (GSP) and under 
the new regime India is likely to lose some of the benefits it held in the textile and leather 
goods, but will gain market opportunities in a number of other sectors, as more developed 
countries, such as South Korea, are excluded, and other countries like China lose benefits 
on a wider range of export sectors. This is all the more important given that India is the 
second largest user of the EU's GSP facility (after China and before Brazil), having an 
overall utilisation rate of about 62%. 
4. Economic co-operation 
There have been active efforts to foster mutual understanding and to facilitate trade and 
investment using economic co-operation. In 1995, 30.5 million ECUs were committed to 
economic co-operation with India, and India also had access to part of several regional 
programmes worth more than 70 million ECU. The commitments made in 1995 doubled in 
a single year the amount that has been spent on economic co-operation with India since 
1976, demonstrating that this has become a very dynamic part of the EU's relations. 
The 1994 agreement provides for a very broad-based co-operation in various economic 
sectors. The European Community-India co-operation strategy up to the year 2000, 
agreed at the Joint Commission in November 1994, focuses support on reinforcing the 
Gol's efforts at economic reforms and on strengthening the interaction between European 
and Indian economic operators. Areas particularly singled out (with emphasis on the 
private sector) include energy, telecommunications, electronics, information and satellite 
technologies, standards, intellectual property, investment, agriculture and fisheries, tourism, 
science and technology, information and culture. 
17 
The newly launched EU-India Economic Cross-Cultural Programme will lay the basis for 
a much greater mutual understanding with media, academic and business aspects 
Furthermore the Commission has initiated a new programme to build co-operation between 
EU and Asian local authorities, called Asia-Urbs. 
The pan-regional Asia Invest programme combined with the recently opened European 
Business Information Centre in Bombay are major steps to raising business awareness and 
promoting private sector linkages. These efforts are also backed by the business 
community using the Council of EU Chambers of Commerce (established in 1982), which 
provides a forum for the European and Indian private sector to review issues and initiatives 
of common interest, as well as the Joint Business Forum. 
On institution building, focus has been given to work on standards and quality 
improvements in industry. This has just led to the establishment of an Indian Quality 
Control Council, and co-operation on property right protection is starting. 
On business to business co-operation, the Commission has promoted technology transfers 
in different sectors including agri-business, transport, energy and environment. The 
Commission and Gol have also set up the 3SE, which in particular aims at economic co­
operation in information technology projects. 
These economic co-operation measures have been backed by assistance from the European 
Community Investment Partners scheme, which since 1990 has provided some 10.6 million 
ECU to assist 77 joint venture activities in India, initiated primarily by European small and 
medium sized enterprises. 
The first steps have also been taken to support regional co-operation in South Asia, with a 
number of projects. A further step is now being taken to establish inter-institutional 
collaboration with SAARC through the establishment of a Memorandum of Understanding 
on Administrative Co-operation between the EU and SAARC, focusing on exchange of 
information, staff training and technical assistance. 
5. Development co-operation 
The EU is the second largest bilateral aid donor to India (16% of total), and the largest 
grant donor (60% grants). The main part of EU aid (about 800 million ECU annually) is by 
the member states directly with Germany, the UK, and the Netherlands in the lead. Funds 
from the European Community budget represent 10-15% of EU assistance, almost on a 
level with Dutch funding. This Commission co-ordinated development co-operation with 
India in 1976 and since then well over 1.6 billion ECU have been committed. This action is 
added to by the European Investment Bank which, from 1993 to 1995, agreed to lend 55 
million ECU for projects in the power generation sector. This makes India the largest 
recipient of European Community aid in the developing world. 
In the past, funding particularly aimed at increasing and diversifying agricultural 
production. Projects included development and rehabilitation of irrigation, improved 
sustainable use of natural resources, and support to the agri-food industry and markets. In 
addition, reforestation has been financed as a priority in its own right. One lesson drawn 
from these projects has been that agricultural pricing, trade and markets must be freed if 
18 
real progress is to be made. It is not enough simply to improve access to funding and 
technology, the key signal must come from a change in policy. 
Hence, since 1993 there has been a change of track, and human resource development has 
become top priority, funding a primary education programme which gives special attention 
to female education. This is the biggest Commission-run programme of its kind, and is a 
model of policy reform support. This new co-operation strategy has been confirmed since 
then in a Joint Commission with the Gol, which established that up to the year 2000 co­
operation should be focused on: 
access of the most deprived to productive resources 
basic social services. 
In addition, the Commission has sought to multiply the impact of its own support by: 
concentrating efforts on a limited number of programmes of a certain critical mass; 
encouraging private sector participation. 
It is also of note that this strategy is in line with that undertaken by the Bretton Woods 
organisations. 
Finally, there has also been an increasing trend in recent times to develop projects, 
integrally involving local groups in participate mechanisms. Experience shows that local 
support is essential to establishing sustainable development projects. One means to reach 
such participation has been the use of Non-Governmental Organisations, particularly local, 
which have shown to he the most effective partners in fighting poverty alleviation at grass 
root, and in helping to improve social and human rights. 
AttïtexeX Itlie tïïdia» ec&nomy 
1. International GNP league table, 1993 
Billion 
US$ 
USA Japan China Canada tlraill Kuiila Korea Mndco Aurtralia India Swlii Argentina Indoneita Turkey 
Source: World Bank Atlas 1995 
2. Evolution of Indian Gross Domestic Product 1980-94 
1980-81 1985-86 1990-91 1993-94 8000 
H7000 
6000 
5000 Billion 
Rupees 
lit current 
H3000 prices -4000 
2000 
1000 
0 
Year 
Source: World Bank, India Country Economic Memorandum, 1995 
3. Annual % GDP Growth in India 1989-1995 
1989 1990 1991 
Year 
Source: Asian Development Bank, Asian Development Outlook 1995 and 1996 
20 
I. Breakdown of employment and GDP by type of nctivify isi 1993-94 
% of total 
«DP or 
Labour Force 13 Afcràulture 
• industry 
E& Services 
Labour Force GDP 
Source: World Bank, India Country Economic Memorandum, 1995 
5. India's External Debt, 1990-94 
1990-91 1991-92 1992-93 1993-94 1994-95 
Year 
Source: World Bank, India Country Economic Memorandum, 1995 
21 
Aa»e*eX Population * s\«^\ ; VÇ î^%Sî5P^fKJMJ^G^ ^vf^;lt 
1. Estimated Indian population 1960-2000 
Million 
people 
1960 1965 1970 1975 1980 1985 1990 1995 2000 
est. 
Year 
Source: World Bank, India: Trends, Issues and Options, 1990 
2. Other population features 1970-93 
Indicators 
density 
annual growth 
fertility index 
infant mortality 
life expectancy unit 
inhab/km2 
% 
births/woman 
per 000 
year 1970-751 
188.8 
2.2 
5.4 
132 
50 1980-85' 
232.1 
2.0 
4.5 
106 
55 I988-932 
267.7 
2.0 
3.7 
80 
61 
Source: World Bank, India Country Economic Memorandum, 1995 1 Latest single year 
Most recent estimate 
22 
1. Evolution of India's Trade with the World 
Imports' 
Exports1 1985-86 1990-91 1993-94 
Deficit3 1980-81 Year 
Source: World Bank, India Country Economic Memorandum, 1995 
Imports^ Imports of goods and non-factor services 
Exports^- Exports of goods and non-factor services 
Deficit Deficit on resource balance 
2. Destinations of Exports and origins of Imports for India, 1994 
30 
25 
20 
% of total 
15 exports or 
imports 
10 
Japan 
Source. Economic Survey, Ool. 
Ex Export destination 
Inv- Import origin 
The EU (as well as OPEC) was still beneficiary in its trade balance with India for 1994. The situation was 
the opposite for the US and in a lesser extent for Japan. 
23 
Anaexe & Evolution of foreign Investmeat i& ïadïa 
Direct foreign investments approved by Indian authorities 1991-1995 (in million 
ECU & %/total) 
EU 
USA 
Japan 
NIU* 
Total 
invest 
the 4 
as% 
of tot. 1990-91 
ECU 
43.6 
43.7 
13.0 
4.9 
129.2 % 
33.8 
33.9 
10.1 
3.8 
79.6 1991-92 
ECU 
119.9 
284.6 
152.6 
109.8 
950.4 % 
12.6 
29.9 
16.0 
11.6 
69.1 1992-93 
ECU 
399.1 
868.2 
64.4 
258.1 
2215.4 % 
18.0 
39.2 
2.9 
11.6 
71.7 1993-94 
ECU 
656.4 
872.0 
100.2 
122.7 
3546.8 % 
18.5 
24.6 
2.8 
3.5 
49.4 1994-95 i 
ECU 
1322.4 
1585.9 
374.8 
173.1 
7180.8 % 
18.4 
22.1 
5.2 
2.4 
48.1 
Source: SIA Newsletter, Ministry of Industry, Gol 
+ All years are from August to July of year indicated, except 1995 which is August to November (ie 16 months) 
*Non-Resident Indians 
24 
1. EU-India Trade Flows 1990-1994 
1994 
1993 
Year 1992 
1991 • EU trade surplus with India 
E3EU imports from India 
• EU exports to India 
1990 
0 1000 2000 3000 4000 5000 6000 7000 8000 
Million 
ECUs 
Source: Eurostat 
Note: total EU external trade grew by approximately 20 % from 1990 to 1994, compared with 32% growth for trade with India. 
2. Recent trends in EU imports from India, 1990-1994 
Products or product groups 
Textiles / clothes 
Leather articles / skins 
Precious stones 
Agri / marine products 
Engineering / electronics 
Carpets 
Food products and live animals 
Chemical products 
Machines/transport material 
Manufacturedproducts/raw material 
Different manufactured articles 1990 
in Million ECU 
1,434 
713 
604 
594 
376 
204 
452 
182 
171 
1,723 
1,514 1994 
in Million 
ECU 
2,206 
1,001 
707 
889 
766 
262 
712 
416 
427 
2,362 
2,481 %/1990 
54 
40 
17 
50 
104 
28 
57 
127 
148 
37 
64 
Source: Eurostat 
25 
3. Recent trends EU exports to India, 1990-1994 
Product groups 
b ood products/li ve animals 
Oils, animal fats/vegetables 
Chemical products 
Jewellery (pearls, precious stones,...) 
Manufactured goods 
Machines and transport material 1990 
in Million ECU 
9 
3 
554 
1,540 
2,220 
1,965 1994 
in Million 
ECU 
60 
5.5 
746 
2037 
2843 
2552 % rise on 
1990 
560 
84 
35 
32 
28 
30 
Source: Eurostat. 
4. Principal European Partners for India -1994 
Exports (destinations) 
Germany 
United Kingdom 
Belgium-Luxembourg 
Italy 
France Million 
ECU % 
1760 
1649 
862 
848 
743 25 
24 
12 
12 
11 Imports (origins) 
Germany 
United Kingdom 
Belgium-Luxembourg 
France 
Italy Million 
ECU % 
1738 
1687 
1610 
763 
594 26 
25 
24 
11 
9 
Source: Eurostat. 
26 
Aa»e*e ViH^ Jaifcrtittj^^ 189M6 (\mimth'^ 
1. International Financial Assistance to India in 1995 (indicative figures) 
UN system 4% 
Source: World Bank 
Total indicative assistance $ 6.7-6.9 billion 
2. Breakdown of total EU aid to India in 1995 (indicative figures) 
Other inc. EIB 
25% 
Source: European Commission 
27 
3. Cumulative European Community assistance to India 1976-1995 (in million ECU) 
Years 
1976-1980 
1981-1985 
1986-1990 
1991 
1992 
1993 
1994 
1995 est. 
Total Econ. 
Coop. 
2.10 
8.48 
14.48 
4.98 
5.28 
9.42 
2.42 
30.50 
77.66 Development Assistance 
Food Aid 
89.07 
286.83 
161.77 
3.73 
35.16 
0.01 
576.57 NGO 
3.93 
11.04 
25.90 
5.00 
3.14 
4.81 
6.54 
7.15 
67.51 Fin. & Tec. 
93.50 
221.30 
363.42 
72.33 
13.17 
164.00 
10.95 
72.85 
1,011.52 Sub-total 
186.50 
519.17 
551.09 
81.06 
51.47 
168.82 
17.49 
80.00 
1,655.60 Human. 
Assist. 
0.51 
17.51 
29.58 
0.32 
2.04 
7.57 
0.30 
57.83 Total 
189.11 
545.16 
595.15 
86.04 
57.07 
180.28 
27.48 
110.80 
1,791.09 
Source: European Commission 
28 
EN ISSN 0254-1475 
COM(96) 275 final 
DOCUMENTS 
11 
Catalogue number : CB-CO-96-322-EN-C 
ISBN 92-78-05919-6 
Office for Officiai Publications of the European Communities 
L-2985 Luxembourg 
21