Source: EURLEX
Language: en
Format: md

**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 partner [1] of the European Union (EU) [2],
India is a rising force, with the eleventh largest economy in the world [3], a Gross Domestic
Product (GDP) of 212 billion ECU [4] (1995) and the second largest population in the world
with at least 900 million inhabitants [5] (the EU has 370 million) living on a land area of 3.3
million km [2] (the EU is 3.2 million km [2] ).

###### 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 1991 [7 ]

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 GDP [9] . 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 EU [10 ]

in a number of advanced sectors eg chemicals, engineering and electronic products as well
as machinery and transport materials [1] _[1]_ _._

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 ECU [12] . 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 million [13] ), but average annual per capita income is just 235
ECU, and poverty is still a problem (touching some 210 million people [14] ). India therefore
faces a major development challenge, with malnutrition, child labour (estimated as affecting
17 million children [15] ), and relatively low life expectancy (61 years [16] ). 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 NonProliferation Treaty (NPT). Japan has gained in importance, and is currently the largest
foreign aid donor to India, (20% of total [17] ), 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 addedvalue 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 subsectors 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 cooperation 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 EUIndia 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 cooperation 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 workforce. 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, multicultural 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, freetrade 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 1994November 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 cooperation 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 cooperation 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**

**8000**

H7000

6000

1980-81 1985-86 1990-91 1993-94

Source: World Bank, India Country Economic Memorandum, 1995

**3.** **Annual % GDP Growth in India 1989-1995**

5000 **Billion**

Rupees

-4000

lit current

H3000 prices

2000

1000

0

Year

**1991**
**1990**
**1989**

Source: Asian Development Bank, Asian Development Outlook 1995 and 1996

20

Year

I. Breakdown **of employment and GDP by type of** **nctivify** isi **1993-94**

% of total

**«DP** or

Labour Force

**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**

13 Afcràulture

- industry

E& Services

**Aa»e*eX Population** - s \ « ^ \ ; V Ç î^%Sî5P^fKJMJ^G^ ^ v f ^ ; l t

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**

_1980-85'_

232.1

2.0

4.5

106

55

_1970-75_ _[1 ]_

188.8

2.2

5.4

132

50

_Indicators_

_density_

_annual growth_

_fertility index_

_infant_ _mortality_

_life expectancy_

_unit_

_inhab/km_ _[2 ]_

_**%**_

_births/woman_

_per 000_

_year_

_I988-93_ _[2 ]_

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'**

**Exports** **[1 ]** **1985-86**

**1990-91** **[1993-94 ]**

Year
**Deficit** **[3]** **1980-81**

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)**

_1990-91_

_1991-92_

_1992-93_

_1993-94_

_1994-95_ i

_**%**_

**33.8**

33.9

10.1

3.8

79.6

_%_

12.6

29.9

16.0

11.6

69.1

_%_

18.0

39.2

2.9

11.6

71.7

_%_

18.5

24.6

2.8

3.5

49.4

_ECU_

399.1

868.2

64.4

258.1

2215.4

_ECU_

**119.9**

284.6

152.6

109.8

950.4

_%_

18.4

22.1

5.2

2.4

48.1

_ECU_

656.4

872.0

100.2

122.7

3546.8

_ECU_

1322.4

1585.9

374.8

173.1

7180.8

_EU_

_USA_

_Japan_

_NIU*_

_Total_

_invest_

_the 4_

_as%_

_of_ _tot._

_ECU_

**43.6**

43.7

13.0

4.9

129.2

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**

**1990**

**0** **1000** **2000** **3000** **4000** **5000** **6000** **7000** **8000**

**Million**

**ECUs**

**•** **EU trade** **surplus with India**

**E3EU** **imports from India**

**• EU exports** **to** **India**

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**

_1994_

_in Million_ _%/1990_

_ECU_

_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_

Source: Eurostat

_1990_

_in Million_ _ECU_

1,434

713

604

594

376

204

452

182

171

1,723

1,514

**25**

2,206

1,001

707

889

766

262

712

416

427

2,362

2,481

54

40

17

50

104

28

57

127

148

37

64

**3.** **Recent trends EU exports to India, 1990-1994**

_1994_

_in Million_ _% rise on_

_ECU_ _1990_

_Product groups_

_b_ _ood_ _products/li_ _ve animals_

_Oils, animal fats/vegetables_

_Chemical products_

_Jewellery (pearls, precious stones,...)_

_Manufactured goods_

_Machines and transport material_

Source: Eurostat.

_1990_

_in Million ECU_

_9_

3

554

1,540

2,220

1,965

60

5.5

746

2037

2843

2552

560

84

35

32

28

30

_Million_

_ECU_ _%_

1738 26

**4.** **Principal European Partners for India** **-1994**

_Exports (destinations)_

_Germany_

_United Kingdom_

_Belgium-Luxembourg_

_Italy_

_France_

Source: Eurostat.

_Million_

_ECU_ _%_

1760 25

25

24

11

9

1649

862

848

743

24

12

12

11

_Imports (origins)_

_Germany_

_United Kingdom_

_Belgium-Luxembourg_

_France_

_Italy_

**26**

1687

1610

763

594

##### Aa»e*e V i H ^ 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_ _NGO_ _Fin._ _&_ _Tec._

_Total_

189.11

545.16

595.15

86.04

57.07

180.28

27.48

110.80

1,791.09

_NGO_

_Fin._ _&_ _Tec._

_Human._

_Assist._

0.51

17.51

29.58

0.32

2.04

7.57

0.30

57.83

_Sub-total_

186.50

519.17

551.09

81.06

51.47

168.82

17.49

80.00

1,655.60

89.07

286.83

161.77

3.73

35.16

0.01

576.57

3.93

11.04

25.90

5.00

3.14

4.81

6.54

7.15

67.51

**28**

93.50

221.30

363.42

72.33

13.17

164.00

10.95

72.85

1,011.52

Source: European Commission

### **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**