Context: India and the European Union on Wednesday adopted a joint declaration on moving towards a more circular economic model that provides for reduction in primary resource consumption and enhances the use of secondary raw materials. The declaration was adopted at a virtual summit of the leaders of the two sides that resolved to significantly expand bilateral economic engagement, recognising that post COVID-19 recovery priorities offer opportunities to unleash the full potential for trade and investment ties. The 27-nation EU is India's largest trading partner for goods with trade exceeding 100 billion dollars. The bloc is one of the largest investors in India with cumulative investment of over 91 billion dollars. The EU is also an important source for technology, innovation and best practices for India. In the summit, the two sides also decided to set up a high-level dialogue to address trade irritants and improving conditions for traders and investors on both sides as well as discuss supply chain linkages.

Common interests

• Both aim to enhance strategic autonomy and their global standing.
• Diversifying strategic value chains is also a common interest.
• Both seek to address the issue of climate change on an urgent basis.

Economic ties with the EU

• The EU is India’s largest trading partner accounting for €80 billion worth of trade in goods in 2019.
• This is equal to 11.1% of total Indian trade.
• The EU is also the biggest foreign investor, with €67.7 billion worth of investments made in 2018.
• Which is equal to 22% of total FDI inflows.

Scope for improving the economic ties

• The EU’s investments in China amounted to €175.3 billion (2018).
• So, India could succeed in attracting EU investment that might be moving out of China.
• To attract this outflowing investment, India must address the mutual trust deficit.
• Enhanced business cooperation can help both the EU and India diversify their strategic value chains.
• Increasing people’s mobility and connectivity is another area that can create opportunities for innovation and growth.

Talks on FTA

• Both sides need to move further on the Free Trade Agreement.
• A new study from the European Parliament estimates the impact of an EU-India trade agreement between €8 billion and €8.5 billion.
• The study also mentions additional potential gains from enhanced coordination on the provision of global public goods, such as environmental standards.

Cooperation on climate change

• Under the new industrial strategy, the Green Deal, the EU has set an ambitious target to be carbon-emission neutral by 2050.
• If the EU and India succeed in transforming into carbon-neutral economies by 2050, we all would gain from the investment.

Renewal of Agreement on Scientific Cooperation

• India and the EU have agreed to further collaborate in research and innovation based on the principles of mutual benefit and reciprocity, as established in the India-EU Agreement on Science and Technology (2001) which expired on 17th May 2020.
• Both parties are also committed to launch the renewal procedure for the above agreement and acknowledge 20 years of cooperation on research and innovation.

Significance

• It is expected to enhance research and innovation cooperation in different fields like Water, Energy, Healthcare, Agritech & Bioeconomy, Integrated Cyber-Physical Systems, Information and Communication Technologies, Nanotechnology, and clean technologies, etc.
• It will also strengthen the institutional linkages in research, exchange of researchers, students, startups and attract co-investment of resources for co-generation of knowledge.

India-EU Science and Technology Cooperation

• Science and Technology: India-EU Science & Technology Steering Committee meets annually to review scientific cooperation.
• The Ministry of Earth Sciences (MoES) and the European Commission (EC) have established a Co-Funding Mechanism (CFM) to support joint research projects selected under European Research & Innovation Framework Program ‘Horizon 2020’ related to climate change and polar research.
• Space Technology: Indian Space Research Organisation (ISRO) has had a long standing cooperation with the European Union, since the 1970s.
• ISRO and the European Space Agency are working towards enhancing cooperation in earth observation. It also involves the Copernicus programme signed in 2018.
• Copernicus is the European Union's Earth observation programme.

Strategic partnership with EU

• The Indo-Pacific region is becoming contentious, so India should capitalise on its geopolitical leverage there.
• Cooperation with like-minded, democratic powers can support this effort, especially towards assertive competitors like China.
• The EU as a whole offers more to India than the strongest bilateral relations with individual EU member state.
• New Delhi must learn how to maximise benefits from this strategic partnership.
• The disruption caused by COVID-19 has been the occasion for the EU to prove its worth.
• “Next-generation EU proposal” submitted by the European Commission has economic as well as geopolitical implications.
• The proposal shows that the ties that bind the EU extend well beyond treaties and individual members’ self-interest.
• The EU champions the rules-based international order, so the EU and India must act to promote sustainable reform of multilateral institutions starting from the WTO.

Challenges

• Though the EU is India’s biggest foreign investor, there is still room for improvement when compared to EU investments in China which, in the year 2018, amounted to €175.3 billion. The lack of finalization of the FTA between India and the EU is a concern.
• The EU is India’s biggest foreign investor, with €67.7 billion worth of investments made in 2018 which is equal to 22% of total FDI inflows.

Road Ahead

• There is a need to address the mutual trust deficit between India and the EU. The EU and India must take forward the negotiations on the proposed Free Trade Agreement (FTA).
• Facilitating people’s mobility and connectivity could help improve mutual understanding and create opportunities for innovation and growth.
• The present circumstances provide an opportune time for India and the EU to build a partnership that is both economic and strategic and both parties should invest efforts at strengthening this relationship far beyond the economic dimension.

Key Facts Related to Summit

• India-EU Strategic Partnership: A Roadmap to 2025: It was endorsed as a common roadmap to guide joint action and further strengthen the India-EU Strategic Partnership over the next five years.
• Civil Nuclear Cooperation agreement: India and the European Union (EU) have signed a civil nuclear cooperation agreement which focuses on research and development cooperation in the peaceful uses of nuclear energy.
• Clean Energy and Climate Partnership: It was established by the European Union(EU) and India in 2016 to promote access to and dissemination of clean energy and climate friendly technologies and encourages research and the development of innovative solutions.
• International Platform on Sustainable Finance (IPSF): It was launched in 2019.Its members are Argentina, Canada, Chile, China, India, Indonesia, Kenya, Morocco, Norway, Switzerland and European Union.It aims to scale up the mobilization of private capital towards environmentally sustainable investments.
• International Conference on Chemical Management: The conference is to be held in Bonn in 2021.The leaders supported the ambitious mandate for an international chemical and waste management framework beyond 2020.

Road Ahead

• There is a need for comprehensive trade agreement that brings in strong rules, removes barriers to trade in goods and services and investments and opens up free markets. Addressing the mutual trust deficit, facilitating people’s mobility and connectivity can improve mutual understanding and create opportunities for innovation and growth.
• India and the EU are ideal partners to make a difference in an international environment that is increasingly shaped by strategic rivalry between the USA and China.
• They have a common interest in avoiding a bipolarised world and developing the rules-based international order.
• The effort has to be to make the India-EU partnership rise to its potential and provide a new model for international relations today.