Dinkar Khullar is Ambassador of India to Belgium, Luxembourg and the European Union. From 1978 to 1999, he worked at Indian Embassies in Moscow, Rome and Seoul, and was ambassador in Azerbaijan, Bulgaria and Austria. He has also held posts in the Finance and Commerce ministries, and the prime minister's office.
He spoke to EurActiv Editor-in-Chief Daniela Vincenti.
Are we reaching the end of the negotiations for the long-pending (June 2007) EU-India free trade agreement?
The leaders on both sides have been reviewing the progress and we would like to conclude it as early as possible. We are now really at the final stages and are looking at a potential conclusion.
This has been a long journey for the negotiations, which is inevitable given the size of the two partners and the importance of the domestic economies on both sides.
Both sides now know what is negotiable. The agreement is what we call a broad-based trade-and-investment agreement. It covers a very large number of tariff lines, over 95% actually, so it is a very comprehensive agreement.
Inevitably, there are last-minute hitches because individual sectors are of importance to both countries.
In an ideal textbook world, there should be tariff-free trade in goods and services all over the world, but obviously things don’t work perfectly. Both sides have therefore reasons to negotiate specific areas of interests for themselves.
We’re at the final stages where the technical discussions are focused on selected areas as we know now our respective red lines now.
What are the red lines which still need to be addressed?
In both cases, they relate to individual sectors. For instance, in India there will be some things that will require parliamentary approval. The parliamentary approval is such that it can’t be done overnight. The agreement is that we should try to work towards a balanced and realistic outcome. This is a critical stage.
I think both negotiators and the decisionmakers at the top have made known that the next couple of months are going to be critical. We got a summit due to be held this year. It has not yet been settled, but I would expect it to take place in spring 2013.
The negotiators have been advised to work towards trying to present to the leaders at that time some kind of conclusion.
Whether they are able to do so will depend both on the negotiators and the political will. So far as we can see both sides’ leaderships have demonstrated political will; to go in for this agreement.
You said some issues require parliamentary approval. What exactly are you thinking of?
There are some areas of interests for instance in the services sector. Areas like insurance. It’s already opening up. We already have a roadmap for the liberalisation of the sector, but our legal obligations require that a bill is approved in Parliament.
In any system that is never predictable. You can’t say for certain that it’s going to pass Parliament, today, tomorrow or the day after.
Similarly, on the European side: Indian companies have a lot of interest in information technologies and software, for instance.
In order to do more business in Europe, India needs to secure the so-called data security status so that the companies can actually operate here. This again is linked to European regulations regarding data security and the process of certification.
You took two examples. How long is the list of ifs?
There aren’t many. Both the Commission and the Indian officials are seasoned negotiators.
In five years of negotiations, I think they have come to know what the issues are. There are some intractable issues, completely impossible issues on both sides, which they have left out long ago from the negotiation table.
Now, the number of issues on the list is not that long, but they are still being talked about. In fact, we had negotiations just in early December in New Delhi and a new round is scheduled, but I don’t know when.
Because negotiations at this stage are extremely technical, they are also very sensitive.
Are we going towards a partial free-trade agreement, rather than a comprehensive one?
I don’t think so. I think it’s very clearly a comprehensive free-trade agreement. No trade agreement is a 100%. There are always exceptions. The WTO isn’t working because of difficult issues, agriculture for example.
The principle of incremental approach is always built into agreements so that you don't hold up a deal and then try to negotiate additional conditionalities to the agreement.
Why have negotiations taken so long? Do you think the crisis in the eurozone has delayed the successful conclusion of the FTA so far?
Interesting observation. Indeed, the FTA negotiations have taken place amidst difficult economic conditions, in Europe and the rest of the world. But I don’t think that has been a constraint for negotiators.
But there were two reasons of concern. The eurozone crisis at least in the past year or so has meant an increased preoccupation of the EU member governments and member states with their internal problems.
They should be given credit for having led negotiations despite the serious problems they have been confronted with.
The other issue which is weird in times of economic difficulties is the fact that there is a tendency for everyone to look at any deal and say, “We are already in difficult economic conditions. Will the deal really help us? How will it help us?”
Therefore, it has become all more incumbent for the European negotiators to make member states know that this is what the deal is about.
People are asking about the benefits of such deals. But the Commission has said it, studies have showed that in fact if the agreement goes through, trade in goods will benefit the European side significantly in the early years for the simple reason that our tariffs will be reduced. And if you are bringing down tariffs, initially there will be a lot of benefits.
I’m sure that the Commission has explained to member states that the economic benefits will be substantial. And we agree. That’s the reason why we are negotiating.
India is a magnet for foreign investors. However, while foreign direct investment (FDI) in India has gone up in the past two decades, it remains well below the rate in China and Southeast Asia, due to obstacles like poor infrastructure, dependence on oil imports, slow reforms, excessive bureaucracy and corruption. How can India speed up the pace of its economic reform efforts?
This is a very important issue for us. Since the 1990s, India has been looking at improving inflows of foreign direct investment into India. Indeed the numbers demonstrate that we are well below of where we hope to be, but we are working towards improving the situation.
As you pointed out, this is a common complaint of many potential investors. The legal system has now been put in place. I don’t think there are many worries regarding the legal and policy environment for foreign investors if they are undertaking investment.
Most of the sectors have been opened up for investment. They have been opened up on the automatic route, so it produces the process of clearances. Investments are indeed constrained by the couple of points you mentioned.
Infrastructure. That’s the real chicken and egg problem, because infrastructure is the main challenge for investment and in fact we are looking for investment in infrastructure. That’s the real building block for investment across the world.
At present, the main concern that we have as a government is to try to identify how to attract more investment into the infrastructure sector for the spin-off benefits that come from it.
We are setting up the Mumbai-Delhi investment corridor in which we are offering attractive opportunities for investment in infrastructure. We are developing schemes for partnerships, making attractive offers. Individual state governments are offering opportunities.
I wouldn’t say that we have managed to reduce barriers altogether, but a conscious effort is being made. I think the most demonstrable aspect of this is the opening up of individual states.
If you want to get land and set up a unit, you have to get that land from the state government, the provincial government. There are selected provinces and a number of them have been proactive in this regard, trying to encourage investment.
Those provinces have set up a system for window clearance, precisely to facilitate investors on issues you mentioned: excessive bureaucracy, the problem with infrastructure, the problem of corruption.
Often in India, one of the major issues is getting land, electricity and water connections. Some state governments [that] are proactive and looking to get more investment from outside have actually set up single window clearances for this so that the investor doesn’t have to go through multiple layers of authority to get clearances on different aspects.
There is one key issue which remains a big issue and that is what we discussed earlier: the environmental clearance that requires both the state government and the central government approval.
These issues are not unknown to us. Progress has been made and people who have been there for 8-10 years have seen changes during those years. Things have moved forward, not all problems are solved, but methodologies have been devised to give special treatment to foreign investors.
That is what we can offer. Eventually, we must of course solve these problems, and the government is very conscious of this and trying to address it. But there are avenues opened to foreign investors at the moment.
How long for the reforms to be fully implemented?
The reform process has been going on for more than 20 years and it has delivered results. It has generated its own competitiveness among states. If I see you succeeding and employment increases in your state, the likelihood is that the guy who’s running your state will win the next elections and I will lose my next election.
This competitiveness among states has grown. I have witnessed it myself, being abroad for 20 years. Change is noticeable and I think the time is right for us to attract investors.
There is an additional factor. While the rest of the world is still growing relatively slowly, India’s growth is still substantial even though it has come down from 8% to 6.5% in the recent year. We hope to get back to 8% and eventually to double-digit rates of growth as early as possible depending on how the eurozone tackles its own problems and what happens in the United States because these are the draggers of the global economy.
On the other hand, look at it this way: In a world where Europe is seeing 0% growth or even a mild recession, an investor is looking opportunities and these are going to emerge in parts of Asia. China is obviously a major investment destination. But most people have already gone to China, so in terms of the size of markets in Asia, India is going to remain an important market for investors.
Would you say that EU-India relations should go beyond a successful FTA negotiation? What kind of strategic partnership (international governance, regional cooperation beyond trade, global security issues, peacekeeping and peace building)?
That’s a very interesting question. While the FTA has been on the agenda for some years now and acquired an overwhelming place in bilateral discussions, it certainly doesn’t characterise this whole feature of India in the EU strategic relationship.
India’s relationship with EU did begin in the 1960s, when it was not the EU at that time, primarily with an economic content.
It has changed character over the years and evolved considerably. We have now a strategic relationship. We have an annual summit dialogue. And in fact, beyond the economic agenda, the political agenda has now begun to assume increasing importance.
But those summits don’t seem to bring much action?
That’s actually often the case with summits. They go through a process. In October, we had the bilateral security dialogue and this was the 5th or 6th in the series of security dialogues.
These dialogues cover the entire political issues, which cannot always be done in a summit. The summit time is constrained to the leaders on both sides, but much of the work is done at different levels.
We are working very closely on a number of areas with the EU, one is counter-terrorism. This is an area in which we share a common interest. We are working together in many fora and bilaterally. Recently in the Hague in December, we had a dialogue with Europol and Eurojust on these issues.
We have a separate dialogue going on with the EU on cybersecurity as a new and emerging threat. I believe the EU is the only group of nations with whom we have a dialogue on cybersecurity. It has been going on for the last two years.
A third area where we again have a common interest is piracy. We have already been working incidentally on piracy informally, but now we are also going to work on a more formal level. We are working together in the Gulf of Somalia and other areas. But now we have a regular dialogue.
These are new issues that have come up. These are areas in which we have a strategic political cooperation Of course, we have extensive consultations and discussions on the various other political issues and global problems: Iran’s nuclear ambitions, for example.
Even though the summits also discuss these issues, it appears as if they don’t achieve much, but the political agenda is increasing.
Do you think those processes will in the future create some kind of set up so that maybe the EU and India can work together to build some kind of global governance that would be different from the one we have today - a G20 that was created on the brink of a major crisis?
Forming global governance is always going to be a tough call. When the G20 was established there were anger and bitterness from some countries that were not included in the G20, including some from Europe who were unhappy that they were not participants.
Any exclusive process tends to cut out people and obviously causes some degree of heartburn, which is why there will never be an answer to the United Nations. We have to live with the United Nations.
Many people are unhappy with its measures of functioning and inability to achieve major outcomes. But I think it is a necessary part of the global system. It has survived for almost 70 years and I think it will remain central to the global governance agenda. In that context we have already recognised the need for a reform of the United Nations itself and I am not just talking about the Security Council, where you know, India is an advocate for change.
We shouldn’t lose sight of the functioning of the United Nations system as a whole when we are talking about the Security Council.
We must also recognise that while this process will go on, the reality de facto is that decisions will be made in smaller groups.
In the end, major economic decisions at the multilateral level potentially go to the IMF and the World Bank. The major players in decisionmaking in the WTO, inevitably are the major contributing nations and fewer in number are taking the decisions or calling the final shots.
So we will have a global governance where you’ll have the United Nations, but a number of bodies will be working in smaller groups and influencing individual sectors; trade international finance, nuclear security, like that nuclear security summit called by President Obama with selected invitees. G20 is going to stay and it’s going to remain important
India and the EU are participants in all these smaller groups. There is scope to maintain a dialogue, especially on important areas in which we don’t necessarily agree, for instance climate change, but we still talk about it. That’s another area that’s going to be important in the future.
Some are concerned about the TPP (Trans-Pacific Partnership) - creating a big trade bloc without the BRICs - and has an impact on Asian integration. Are you? What impact on EU relations with countries in the region?
It is a process in the making. Everyone is watching it with considerable interest. Let’s see how it shapes up.
At this point of time, there’s not an exact clarity of what happens to Japan. There are many partnerships that are coming up. It you go back to classical trade theory we’re ending up with a number of different trade agreements all criss-crossing one another. You have NAFTA, APEC and now TPP. The EU is about to start negotiations with the Atlantic on the one side with a free trade agreement with the United States.
We are also talking about Japan. In this scenario, how these partnerships and free trade agreements will impact one another will represent an interesting study for economists.
For us as practitioners, I can only say that we are waiting to see what happens on the TPP. I noticed that you mentioned BRIC. BRIC is not likely to become an economic grouping or format. It’s not realistic. But everyone is watching and I’m sure this will be a subject of discussion in our next government discussions.
India is now launching its own foreign aid agency. Africa has been one of the focal points of EU external action and it is now seen as India’s main area of expansion beyond its own region. Would you view favourably a partnership in that area? If yes, what kind of partnership?
Just for clarity, we have set up what we call a development partnership agency which is going to be the channelling agency for our system and you are very right to point out that Africa has been in recent years the focus of our attention.
We have had a long-standing relationship with Africa across the Indian Ocean. Large Indian communities are based in many countries. We have had the process of some amount of assistance in the form of aid.
Our aid in Africa has primarily focused on capacity building. Our aid or assistance has gone into sectors such as education, health, agriculture, IT.
Moreover we have given more than capital; teachers, technical experts. We have set up this scheme through a satellite for health and education being done from India to each of the African Union member states.
So our assistance has essentially been capacity building in these countries. To some extent also sharing of technologies basically in the lower end which they believe is more appropriate technology for their use.
The Chinese of course have signed a much bigger aid than us. It’s a different nature, more commercial and linked to resources, which is not the case with India.
We have the idea of discussions with the EU. It’s very much something we could share with them. They have great expertise. I also know that they have a lot of interest, but I don’t know whether it’s economic as much as it’s a political interest.
We do have in our EU-India joint action plan the idea of discussing the effectiveness of aid, cooperation in third countries. It is in fact listed as one of the items in our joint action plan concluded in 2008.
Where do you think the partnership between India and the EU will be in 10 years' time, considering the EU is in the middle of a process of further integration?
Diplomats are not known to be great prognosticators. Of course it depends much on what’s going to happen within Europe itself. There are numerous hypotheses going on about what will happen. My own prediction is that I think the EU will hang together and we will continue as we are.
The process between India and the EU has in my mind changed substantially. If someone had said in the 1960s or even in the 1980s that India would be talking with the EU in Brussels on a whole range of political issues, some would have said “Forget it. We would only be talking about trade.”
I think the expansion is now going to be on the non-economic side of our agenda. It is on bilateral political issues which are of interests to both of us: global issues. In India we hope that we will become a more important economic and political player.
Europe already enjoys great political and economic prominence. As we do so, we see ourselves as partners in the whole issue of global governance. Europe is the great achiever of the 20th century, just in terms of how it has evolved post-1945 and what they have been able to do in terms of security within the borders of Europe. All of us would like to this kind of security worldwide.
Even during the Cold War, we always saw Europe as a balancing partner at a time where there was great confrontation as we all know. Between the two superpowers of that time, Europe was always the balancing force.
India also doesn’t see itself as anything more than an attempting balancing force in global affairs. We, of course, need the balance and security to concentrate on our development efforts which we need to sort out internally.
Hence, I would think India and the EU should be getting closer together because our interests are common. There is no dissimilarity in our political interests and hence we should be seeing more of each other on the political agenda.