 The largest liberal democracy in the world with 1.2 billion inhabitants celebrated its 63 independence day in August 2010, around the same time as the EU, the largest democratic trading block in the world, was celebrating its 53 anniversary. The EU, comprising 27 diverse economies, is also the largest trading partner and FDI investor in India.
In the decade following the liberalisation of the Indian economy in 1991, the country's GDP grew by 5% to 6% and since then by about 7% to 8% annually upto 2009. Now it is expected to increase by 8% to 10% annually.
The global banking and financial crises of 2008 and the recession that followed in North America and Europe have left India relatively unscathed. India, like China, was among the handful of G-20 countries that did not go into recession (two consecutive months of negative GDP growths). India maintained its second highest GDP growth rate in the world throughout this period. From 2004 to 2009 Indian GDP increased from about $460 billion dollars to over $1.2 trillion. It is expected to reach about $ 4 trillion by 2015, making it the third largest economy in the world after the US and China.
Per capita GDP of India doubled from 2003 to 2007 and is expected to increase further, by three fold, in 2015. This has resulted in an unprecedented growth in the purchasing power of the average Indian citizen, which is the driving force of the country's economic growth.
Over 300 million people are considered as middle class with a high disposable income. This number is likely to increase to about 450 to 500 million by 2015. India took about 200 million people out of abject poverty (earning less than US $ 2 per day) between 2004 and 2009, and these have had some impact on the global food market. These 200 million people, who could barely afford one simple meal a day, are now consuming two or three times more rice, wheat, vegetable oils, lentils and can afford two or three meals a day. Soon they will become consumers for other essential goods. They will become part of the mainstream consumer classes and be drivers of the Indian economy. India plans to bring an additional couple of hundred million people out of abject poverty in the next few years. With new government initiatives in poverty elimination, bridging the urban-rural divide will enhance the Indian economic transformation.
Together, these hundreds of millions of people are consuming all types of commodities and products at an astonishing rate. New mobile phone subscriptions are increasing by about 15-17 million per month, and sales of cars, motorcycles, scooters and bicycles are increasing by about 30% to 35% annually. Millions of radios, TVs, washing machines, refrigerators and other consumer electronics adorn the new houses and apartments all over India. The major difference is that unlike some of the EU countries; these goods are manufactured in India, thus creating millions ofnewjobs in manufacturing and service industries. The annual growth in the engineering industry was about13%to 15%during the last few years.
In July 2010, an analysis by India's statistics agency said that the strong industrial and mining output helped boost the growth rate. Industrial output rose more than 12% while mining and quarrying jumped nearly 9%.
The service industries sector accounts for 55% of India's economy, while industry makes up around 25% of output. Services including hotels and banking also did well, with outputupnearly 10%.
Medical tourism is a rapidly developingnewindustry. The Confederation of Indian Industries (CII) estimates about 1.1 million foreigners travel to India each year for efficient and low cost treatments and surgeries. A heart bypass surgery costs $6,500 in a corporate hospital in India, as compared to $30,000 to $50,000 in the USA.
Since 2008 the industrialised economies of North America and Europe have been facing uncertain economic conditions. Their economies were undermined by unregulated banking systems and strong dependence on an overpriced construction industry. In spite of multibillion dollar bailouts and rescue measures, economic growth remains sluggish and the possibility of a double dip recession is looming heavily. Unemployment is rising fast creating social concerns that are likely to lead to restrictive practices, non-tariff trade barriers and protectionism. India's trade with North America and the EU is likely to face a bumpy ride with protectionist environments in two of its major trading regions. India's well-planned strategy over the last few years, of looking to the East (South-East Asia) and the southern hemisphere for increasing its global trade is paying handsome dividends.
China - India trade has crossed the $50 billion mark and is growing at about 20% to 30% annually. India's trade with South Africa, Brazil and a number of countries is the southern hemisphere is also growing rapidly.
EU-India trade has the potential to reach over €250 billion by 2015. Let's take a cursory glance at the trends in the EU-India trade:
Germany is India's largest European trading partner with 2009 trade worth $15.4 billion followed by France and the UK with about $6.8 and $6.3 billion, respectively. Though these numbers are growing, the share of EU trade with India is not expanding at the same rate as growth in India's total international trade.
At present, the position of theEU(a group of 27 countries), as the largest of India's trading partners, is seriously challenged by other regions. The UAE, with collective trade of US $ 96 billion in 2008-09, is now emerging as a block with larger trade prospects than the EU. In the same year, India has replaced China as the largest trading partner of the UAE. The Asia-Pacific region, including, China, Japan and the group 10 South-East Asian countries 'the ASEAN' will be India's largest trading partners. In 2009 China replaced the USA to become the largest trading country with India.
India has signed a collective Free TradeAgreement with 'ASEAN' and is in the process of finalising an FTA with Japan in October during the Prime Minister Dr Manmohan Singh's visit to Japan.
For the last few years, negotiations have been in progress to draft an EU- India Trade Agreement. However, since 2007 these negotiations have stumbled due to various insurmountable issues and are lurching from high optimism to stagnation.
The EU-India FTAis an essential step in advancing mutual trade. It will require sophisticated negotiating skills and serious compromises on both sides. Entrenched attitudes and resistance to transform outdated trade practices and financial institutions will hamper FTAnegotiations.
The issues and their consequences will have lasting effects on the survival of millions of poor people in India and the rest of the world and hundreds of thousands of jobs in the
EU.
—Dr Prabhu Kulkarni is the president of Gopio Ireland & India Director,
Irish Exporters Association -Asia Pacific Trade Forum
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