……………………………………………………………………………………………………………………………………………........................... 1. RELATIONSHIP BETWEEN INDIA AND EUROPEAN NATIONS Relationship between India, and European nations gained momentum in the 1960s. Democratic ideologies adopted by India and most of the European countries are a strong foundation for the cordial relations between the two sides. In 1993, diplomatic ties were extended to trade, investment and economic cooperation by signing the Joint Political Statement. This, together with the 1994 cooperation agreement between the European Union and India, gave the much needed boost to bilateral trade relations. The relationship, which was majorly focused on trade and investment cooperation, was upgraded to strategic partnership in 2004. Along with commercial relations, European nations have assisted India in its social development activities. Recently, the relationship has transformed from a donor-recipient one to that of cooperation for mutual benefit alongside opportunities. Moreover, burgeoning opportunities in India and the preferential status it enjoys in the global landscape—in the World Trade Organisation and other international institutions—have helped the country establish a long-term relation with European nations. During the course of achieving their respective goals, the two sides have also established strong political and security ties. Increasing collaborations have been bolstered by regular exchange of high-level visits. In the past one and a half years alone, Indian authorities have made several visits to Germany, the UK, France and Belgium. On the other hand, high ranking officials from the UK, Spain and Finland, among others, have visited India, with the most recent being the visit of Deputy PM and Minister of Foreign and European Affairs of the Slovak Republic in June 2013. This justifies the strategic orientation shared by both sides. These meetings were largely aimed at strengthening bilateral trade relations, easing investment rules and resolving various regional and international issues confronting the negotiating nations. Success of International Corporates: Europe 6 ……………………………………………………………………………………………………………………………………………........................... Figure 1 High official visits between India and Europe from 2012 Deputy PM and Minister of Jun 2013 Foreign and European Affairs of the Slovak Republic visits India Minister of Foreign Affairs of May 2013 Finland visits India India's Prime Minister visits Apr 2013 Germany President of Iceland visits India and Minister of Foreign Affairs of Mar 2013 Bosnia and Herzegovina visits India Prime Minister of UK and Feb 2013 President of the Republic of France visits India India's External Affairs Minister visits Germany, Belgium and Jan 2013 France Nov 2012 UK Foreign Secretary visits India Visit of the King of Spain and Deputy Prime Minister of the Oct 2012 Russian Federation to India Visit of Deputy Prime Minister Aug 2012 and Foreign Minister of Belgium to India Visit of Federal Minister for foreign Affairs of Germany to Jun 2012 India Visit of Minister of Foreign Affairs of Italy and President of the Feb 2012 European Council of the European Union to India Source: Aranca Research 1.1 Europe accounts for nearly 17 per cent of India’s bilateral trade Europe is an important trading partner for India. The region1 accounted for nearly 17 per cent of India’s bilateral trade in FY13. Bilateral trade between the two increased at a CAGR of 9.0 per cent from USD94.8 billion in FY09 to USD134.1 billion in FY13. Switzerland is India’s largest trading partner in Europe, with 23.2 per cent share, followed by Germany (16.1 per cent). Of the total bilateral trade, exports constitute 38.5 per cent, with the Netherlands being India’s largest export market in the region, accounting for 20.5 per cent of total exports to Europe. Majority of India’s exports include cotton, textiles, 1 Europe includes Austria, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, UK Success of International Corporates: Europe 7 ……………………………………………………………………………………………………………………………………………........................... transport equipment, pharmaceuticals, marine products, machinery & instruments, leather clothes & footwear, refined petroleum products and auto components. India mainly imports electronic goods, chemical & chemical products, professional instruments, automobiles and aircraft, among others. Figure 2 Switzerland, India's largest trade partner in Europe (FY13) Switzerland 10.8% Germany 3.5% 23.2% 6.7% Belgium UK 7.0% Netherlands 16.1% Italy 9.7% France 11.3% 11.6% Spain Others Source: Export Import Data Bank, Department of Commerce Figure 3 Europe’s share in India’s total bilateral trade reducing 200 20% 19% 150 18% 100 17% 50 16% 0 15% FY09 FY10 FY11 FY12 FY13 bilateral trade (USD bn) between India and Europe % share in India's global trade - RHS Source: Export Import Data Bank, Department of Commerce Success of International Corporates: Europe 8 ……………………………………………………………………………………………………………………………………………........................... India and Europe remain aligned to boost trade Trade between India and Europe has grown in absolute terms over the last five years. However, Europe’s share of India’s global bilateral trade declined during this period. Though bilateral trade fell short of the target set for 2012, India and Europe remain committed to continue strengthening their trade ties through pacts and domestic reforms. For example, India and the UK recently set the target to double their bilateral trade by 2015 from USD18 billion in 2012. 1.2 European countries, major investors in India European countries are a critical source of investments in India. European countries accounted for more than one-fourth of the cumulative USD193.3 billion Foreign Direct Investments (FDI) equity inflows received by India between April 2000 and March 2013. Five European nations were among the top 10 investors in India during the same period, accounting for 18.4 per cent share in total cumulative inflows2. The UK, with 9.1 per cent, tops the list, followed by the Netherlands (4.6 per cent), Germany (2.8 per cent) and France (1.8 per cent). These four nations represent 81.7 per cent of total FDI equity inflows received by India from Europe. Moreover, excluding Mauritius and Singapore, which are being used as channels to mobilise funds and make investments, the UK is also India’s largest investor globally, with cumulative inflows worth USD17.5 billion over April 2000 and March 2013. Table 1 Top 10 list of investors for India globally* Country Cumulative inflows* Mauritius 73.7 Singapore 19.5 UK 17.5 Japan 14.6 US 11.1 Netherlands 9.0 Cyprus 6.9 Germany 5.5 France 3.6 UAE 2.4 Others 29.6 Total 193.3 Source: DIPP * Pertains to April 2000 to March 2013 period 2 Pertains, to, April, 2000, to, March,, 2013, period Success of International Corporates: Europe 9 ……………………………………………………………………………………………………………………………………………........................... Figure 4 Break-up of FDI equity inflows from Europe* 2.3% 2.7% 4.6% UK 3.4% Netherlands 5.4% Germany 40.3% 8.2% France Switzerland Spain 12.6% Italy 20.6% Sweden Others Source: DIPP * Pertains to April 2000 to March 2013 period 2. KEY DRIVERS A fleet of European companies entered India during the post-liberalisation period. The key growth driver for these companies is India’s fast-growing low-cost economy, backed by burgeoning demand and untapped potential across sectors. Furthermore, matured market conditions in domestic economies are encouraging expansion into Indian markets. This attractive opportunity is supported by a series of pacts and agreements signed in the fields of trade, defence, and science & technology between India and European countries. 2.1 India, an emerging low-cost economy with high talent pool The prime reason attracting international players to set up operations in India is the low-cost labour. It is this labour cost benefit that supported the phenomenal growth achieved in the BPO and manufacturing sectors in India. Although labour cost has increased over the years, India remains one of the highly attractive destinations known for its combination of low cost and high quality. The cost factor is supported by availability of highly qualified engineers and scientists. India, with a score of 2.76, stands second worldwide in terms of people skills and availability, surpassing its competitors such as China (2.55) and advanced European counterparts such as Germany (2.17), France (2.12) and the UK (2.26). India, with its elite educational institutions and first-mover advantage, has been able to maintain lead in IT offshoring. Also, English speaking capabilities of its young populace has been a very important factor in driving investments to the country. Success of International Corporates: Europe 10 ……………………………………………………………………………………………………………………………………………........................... Figure 5 India – Second most attractive destination globally for people skills and availability 3.0 2.5 2.0 1.5 1.0 0.5 0.0 India China UK Germany France Brazil Source: AT Kearney location index 2011 2.2 European firms diversifying investments to India Limited scope for growth in domestic markets is the key reason why European companies diversify investments globally, especially to emerging economies such as India that offer strong prospects. Amid the shift in consumption and production to these