The European economy is going through a slowdown and the Indian economy is still one of those economies which have a great scope for growth. So in order to strike a balance between the two, the 27 nation European Union is looking to touch down on Indian shores via a FTA ( Free Trade Agreement) which has several points of indifference between the two authorities.
Let us explain to you how it will impact our automotive sector and then we’ll talk about the rest of the economy.[box type=”info” ]Proposal: EU has proposed that the duty on 50,000 European cars being brought into India should be reduced from 100 percent to 10 percent.[/box]
This would bring the duty on CBU (Completely Built Unit) cars down by a considerable amount and a slew of European manufacturers would like to enter India. What it would do is that the buyer will get a lot of choices at competitive price points but at the same time, the sales of the automotive companies which are present in India will take a hit.
This shall also prove to be a bit unfair to the Japanese, American, Korean and Indian companies who have already invested quite a lot in India.
Also, with the trade opening up, who knows this limit of 50,000 units might get revised in future.The import of 50,000 units at such a low duty shall also decrease the government’s revenue to quite a large extent.
The European cars are technically way ahead of the ones which are being sold in India and seeing the fact that they’ll come with a price tag similar to the ones currently on sale in India, they’ll get an instant following with the Indian car manufacturers going back to the drawing board to bring in better cars at further lower points.
However, in all this the biggest winner will be the consumer.
Point of indifference:
The Indian manufacturers are of the opinion that this would curb the growth of the automotive companies present in India and the European companies would get an undue advantage. The sole purpose of imposing duties was to help the Indian automotive sector grow which will take a dent.
The second most important group of people involved is the spare part suppliers. When the demand for the cars produced in India would be reduced, their sales would reduce and in turn, this would impact the livelihoods of many.
It could swing in the favour of the Indian companies as well. This is because order for an emerging economy to flourish such restrictions should be lifted so as to allow the it( in this case the Indian industry) to compete head on with the international giants, thus helping the Indian industry grow.
Dairy Sector and its impact:
EU currently has enough of dairy surplus and it is looking to dump its surplus in developing countries. The Indian dairy sector currently employs over 90 million people and the all the protection rights that were given to the Indian dairy sector would take an exit.
And the EU is not even removing the subsidies it provides to its agricultural sector thus making its products cheaper and making it difficult for the Indian counterparts to compete.
Impact on Insurance Industry
The EU bloc does not stop at the automotive sector and the issue which has gained a lot of importance off late has been the allowance of investment in the Insurance sector.
The EU states that the cap on Foreign Direct Investment (FDI) in insurance sector which currently stands at 26 percent should be raised to 49 percent. The insurance sector in India is already undergoing a consolidation phase and it will further deteriorate the state of the Indian companies.
Its not just these 3 sectors but a slew of sectors that the EU wants to infiltrate in the name of free trade. The EU is approaching developing nations individually who did not accept the proposals of the developing nations at the WTO.
EU is looking to enter the finance sector through liberalization and the Biotech sector by strengthening its claims on intellectual property rights to get a slew of royalties from Indians.
It all may look good on the outside that it will put the Indian industries at par with the International units but is Indian industry ready for that?
We still need a consolidation in a lot of sectors and the FTA is just a way for the developed nations to dump their surplus and ride through the economic turmoil they have been going.
The other side of the coin reads that India might undergo a drastic structural change giving it the edge in every department to compete in the global arena. But that is what an optimistic would tell you.
We are just practical and in real terms, the India-EU FTA is not something India needs right now. It has been getting delayed since 2007, there must be a reason for it.
More interesting articles on this subject
- The EU-India Free Trade Agreement: India up “For Sale” to Western Corporate Capital
- Secret Negotiations behind Closed Doors: The EU-India Free Trade Agreement, Devastating Economic and Social Impacts