Is Europe out in the Cold as Modi “Looks East, Links West”?

This article was external pageoriginallycall_madepublished by external pageFriends of Europecall_made on 19 November 2014.

These are busy times for Asian leaders – and Indian Prime Minister Narendra Modi is among the busiest. As he criss-crosses the region, clinching business agreements, attracting much-needed investments and building strategic alliances, Modi is making his mark as one of Asia’s most turbo-charged economic diplomats and successful deal-makers.

The jury is still out on Modi’s record (so far) in tackling India’s many domestic reform challenges. But he’s been in power for only six months and never promised a “Big Bang” reform agenda. Still, pressure for urgent action to rev up the economy is growing. Modi’s national “to-do” list is long, including the promotion of domestic and foreign investments, creating jobs, improving food security, raising standards of education and skills development. Other domestic priorities include building new infrastructure, enhancing water governance and increasing India’s overall competitiveness, including in the manufacturing sector.

Skilful international performance

No doubts exist about Modi’s international performance, however. The Indian Prime Minister gave a first glimpse of his foreign policy ambitions when he invited all South Asian leaders to his inauguration this summer. Trips to Bhutan, Nepal, and Fortaleza, Brazil, for the BRICS Summit, followed as did visits to both Tokyo and Washington where he successfully put recently-lacklustre US-India relations on friendlier ground.

Signalling closer relations between two of Asia’s most important emerging powers, Chinese President Xi Jinping was in India in mid-September in a bid to improve investment and trade ties. Despite border incursions by Chinese troops casting a shadow on talks, the two leaders announced $20 billion worth of Chinese investments in India over the next five years.

Relations between Japanese Premier Shinzo Abe and Modi are unusually warm, with Japan recently promising to invest $35 billion over five years in infrastructure projects in India, including building smart cities and clean-up of the Ganges.

Meanwhile, India’s decision to join the World Trade Organisation’s trade facilitation agreement after striking a deal with the US on food security – a move made just before Modi headed off to an array of Asian gatherings in November – has given a further boost to Delhi’s global credentials. The breakthrough, which follows intensive negotiations involving both Modi and US president Barack Obama, is expected to bolster India’s chances of joining the Asia-Pacific Economic Cooperation (APEC) Summit. Modi was invited to APEC’s recent Beijing gathering as an observer by Chinese President Xi but stayed away because India desires full membership.

Look East – and Act East

This autumn, the Indian Prime Minister set his nation and the rest of Asia abuzz with his determination to inject new life into India’s “Look East” policy which, following his incessant Asian travels, including recent talks with ASEAN (Association of Southeast Asian Nations) and other Asian leaders in Myanmar, has morphed into what Modi proudly describes as a “Look East – and Act East” policy.

India’s decision to step up its game in Asia is no surprise. As an emerging power with “great power” ambitions, India has no option but to seek a stronger role in a volatile neighbourhood and a region marked by often-changing geopolitical rivalries and alliances. Also, tapping into the region’s dynamic economies is critical for India’s own growth and reform agenda.

Certainly, China has the funds needed to help finance India’s infrastructure requirements while Japan and South Korea have the technical experience and expertise. Southeast Asian markets are important for Indian investors and exporters. Sustainable peace with Pakistan may still be a long way off but is essential for India’s development and peace and stability in the region.

While in Myanmar, Modi made the headlines by pushing his “Make in India” campaign, which aims to turn the country into a global manufacturing hub, by cutting red tape, upgrading infrastructure and making it easier for companies to do business. Modi promised to implement long-delayed plans to boost trade and deepen ties with ASEAN so that current trade flows could rise from $75 billion today to $100 billion by 2015.

“With West Asia—the traditional source of energy imports, labour exports and remittances—in disarray, this is an opportune moment for India to strengthen its ‘Look East’ policy to expand economic interactions and security partnerships in the Asia-Pacific region,” says Neelam Dao, Director at the Gateway House think tank in Mumbai.

A search for “balance” in Asia

In fact, the policy is not new. India has long spoken of developing a “Look East” policy, but has lagged behind China in forging ties with emerging economies in South-East Asia. Tackling China’s influence on ASEAN and South Asia is still a challenge, says Dao. China’s massive bilateral trade relations with ASEAN and South Asian member countries dwarf those of India. “China’s trade with ASEAN member Vietnam was $50 billion in 2013, while India-Vietnam trade is a relatively meagre $8 billion. Similarly, China’s trade with Pakistan is $12 billion, while India’s is only $2.6 billion,” underlines Dao. Still, Japan, ASEAN and others in the region are certainly looking to reduce their economic dependence on China by reaching out to India.

Indian commentators also underline that Modi used the ASEAN meeting to articulate for the first time India’s intent to enhance “balance” in the Asia Pacific region, arguing that the word was carefully chosen to reflect India’s shared concerns with other Asian countries about China’s growing assertiveness in the region. Interestingly, Indian defence cooperation is being stepped up with several Indian Ocean states including Sri Lanka and Maldives, countries recently visit by President X. India will supply four naval patrol vessels to Hanoi as part of $100 million Line of Credit signed last month. The two countries have also decided to ramp up cooperation in the field of hydrocarbon, civil nuclear energy and space.

And the EU?

Given Modi’s focus on the Asia-Pacific, the EU’s new leaders may have to wait a long time before he signals a real interest in upgrading bilateral ties.

It is no secret that the EU-India strategic partnership needs a shot in the arm and that trade and investment flows are much too modest. But negotiations for an India-EU Bilateral Trade and Investment Agreement (BTIA) —the most important issue on the bilateral agenda—have lasted for seven years, with no end in sight. And hopes that Delhi would put energy and effort into the successful conclusion of the elusive deal have not materialised, with differences over tariffs and market access as well as questions related to the protection of intellectual property rights continuing to impede progress. The pact could be signed in 2015 – but only if both sides can summon up the political will to look beyond the array of technical issues to the deeper strategic importance of their relations.

Modi and the EU’s new leaders face the uphill task of taking the relationship to a higher and more genuinely strategic level, a move that would benefit both sides. In addition to the geopolitical value of such a decision, European investors are willing and eager to enter the Indian market. European know-how could be valuable to India’s reform and modernisation agenda. Europe, meanwhile, needs new markets to keep its modest economy on track.

There may be some signs of hope. Trade between the EU and India grew from 28.6 billion euros in 2003 to 72.7 billion euros in 2013. And while at the G20 summit in Brisbane, Modi told Herman Van Rompuy, the outgoing President of the European Council, that the “EU should take advantage of the new economic environment in India” while his EU interlocutor responded that Europe was keen to “re-engage” with India in all areas, especially trade. Rompuy also threw his weight behind Modi’s call for an international “Yoga Day”.

Such initiatives are encouraging – but not enough. EU and Indian leaders have not met for summit talks since February 2012. An early meeting between Modi and the EU’s new presidents of the European Commission and the EU Council this autumn will therefore be crucial in signalling a fresh start in relations.