India, EU free-trade talks stall despite 49% FDI in insurance

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Finance minister Arun Jaitley, in his maiden Union Budget last week, announced that the government intends to increase the composite foreign investment cap in insurance to 49% from current 26% through government approval route. Photo: Hindustan Times

Livemint | 14 July 2014

India, EU free-trade talks stall despite 49% FDI in insurance

Do not see any progress in the deal this year, says commerce ministry official Asit Ranjan Mishra

New Delhi — Talks between India and the European Union (EU) for a free-trade agreement (FTA) are unlikely to take off any time soon, even though the new government has met a key EU demand by raising the ceiling for foreign direct investment (FDI) in insurance companies to 49%.

“We do not see any progress in the deal this year. EU is more focused in finalizing a trade deal with the US by year-end (Trans-Atlantic Trade and Investment Partnership). They don’t see it as the right moment to kick-start negotiations with India,” a commerce ministry official said, speaking under condition of anonymity.

Finance minister Arun Jaitley, in his maiden Union Budget last week, announced that the government intends to increase the composite foreign investment cap in insurance to 49% from current 26% through government approval route.

A year ago, the EU’s demand for a more open insurance sector in India was thought to be the only key issue left to be resolved in the long-running talks. But many issues that were then considered resolved have come up since then.

While the Indian side is now reluctant to yield to the EU demands on lowering the duty on Europe-made cars, yielding to the domestic lobby, the EU too has also hardened its stand on intellectual property rights issues.

Negotiations on FTA, called the bilateral trade and investment agreement, began in 2007, but the two sides have missed at least four deadlines to clinch a deal. While the EU is keen to have greater market access to India, including for a large number of agricultural products, India wants to see fewer restrictions on the temporary movement of its nationals working in Europe.

India also wants the EU to declare the country data safe, which will help Indian information technology and outsourcing companies. But Brussels insists the issue is not part of the FTA negotiations and should be dealt with independently.

What could also worry the EU is the strong stand taken by the Bharatiya Janata Party (BJP) on FDI in multi-brand retail. A desire to seal the deal with EU was considered one of the reasons why the Congress party-led United Progressive Alliance (UPA) government pushed through FDI in multibrand retail during its tenure.

However, BJP, which leads the ruling National Democratic Alliance (NDA) government, in its manifesto said it would allow FDI across sectors wherever needed for job and asset creation, but not in supermarkets.

“The BJP is committed to protecting the interest of small and medium retailers, SMEs (small and medium enterprises) and those employed by them,” it added.

While Prime Minister Narendra Modi, towards the end of this year’s general election campaign, had signalled that if elected, his party may not necessarily reverse the UPA’s decision, the new government has yet to make its stand completely clear. Last week, answering a parliamentary question, commerce minister Nirmala Sitharaman said the government is yet to take a final call on the matter.

T.S. Vishwanath, principal adviser at APJ-SLG Law Offices, said India is not in a hurry over the EU free-trade deal.

“There is a view that all our FTAs have to be balanced. But by announcing higher FDI limit in insurance, India has sent the signal that they are ready for negotiations. The ball is now in the court of the EU to respond,” he added.

Meanwhile, Sitharaman has asked her ministry to prepare a report on the effectiveness of the FTAs that India has already signed. Industry lobbies have been complaining that the existing FTAs have only benefited the trading partners and led to an increase in imports for India.

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