Economic Highlights

New Delhi, 18 April 2015

Modi’s 3-Nation Tour

SELLS DREAMS, STRIKES DEALS

By Shivaji Sarkar

Prime Minister Narendra Modi has rightfully sold dreams to France, Germany and Canada for bolstering their economies by ensuring success of “Make in India”. Despite a sagging economy in Europe, the countries are warming to the invitation as the Prime Minister rolled out the roadmap for easier, hassle free investment.

Modi sought to boost trade and promote a “Make in India” campaign that’s aimed at persuading more companies to establish manufacturing plants in India. “I expect my visit to be helpful in advancing our Make in India initiative. The free trade agreement (FTA) discussions with European Union are ongoing,” he said. “No Prime Minister has visited these countries for a long time”.

The Prime Minister urged business leaders at the Hannover Messe (fair) to start manufacturing in India, saying his Government was cutting regulations and reducing red tape to make it easier for companies to work. It is not a brand but a “movement” for creating stable economic environment that inspires confidence at home and abroad, he told them.

The visit has opened up new vistas and many promises. It is remarkable to have even promises from French President Francois Hollande and German Chancellor Angela Merkel. The French deal for purchase of parts by Airbus would be a $2 billion gain for India. Merkel is trying to make free EU-India trade deal a reality.

The $283 million uranium deal with Canada for Indian nuclear plants may look insignificant to many, but it is remarkable as it ends almost a 40-year ban that Canada had put on India since the Pokharan I test in 1974. It shows Canada is keen on doing business with India. The uranium supply would help continue the present plants as well as ensure supplies for the new ones being set up. This is the second major uranium deal after Modi struck similar deal with Australia.

Merkel and Hollande have problems. Europe is going through a severe recession. The European Central Bank (ECB) is under pressure from all European governments for easing monetary policy. Merkel is being seen as the queen, who Europe expects to lead them to better days and create jobs. So she invites more investments from even business houses in India. Modi made it no secret when he implored Germany to increase investments in India to balance the Indian gesture.

It is a bit tough deal with Germany. India has 1600 collaborations and 60 joint ventures with German companies. For long Germany also set up tool rooms to enhance skills of Indian workers. Even the Siemens Technical Institute, which the Modi visited, has a unit in Bengaluru.  Germany has collaboration in science and technology though of late it has reduced funding its DAAD fellowship programmes. Even trade with Germany has slumped to euro 16 billion from higher figures earlier.

Germany acts slowly when it has to open up its purse. Baba Kalyani of Bharat Forge aptly sums it up. He says “whatever private discussions that I have had with a number of my friends in the German industry, they are impressed, they are motivated. Nobody is going to jump in and open the floodgates and I don’t think that is desirable. However, I think everybody is going to start looking at India in a new and a different way. Everybody is going to start looking at which areas they could invest in whether it is infrastructure or power. There was a lot of discussion on power and infrastructure. The Germans very rightly believe that unless you have high quality and 100 percent power you really can’t develop business. Unless you have good quality of infrastructure you really can’t make business productive.”

Neither France is keen. India may strategically figure to some extent. For French companies like Areva, India is a good destination to do business but still they have reservations. Their aim is to maximize profits. So they may invest in nuclear energy as Europe and even the US has stopped adding to nuclear power capacity. Apart from being expensive, nuclear energy radiation and waste management is considered expensive. The market in Europe is closed. Even Europe has found shutting down plants to be an expensive proposition. Hazardous radiated waste needs to be securely managed for 10,000 years.

France also does not want to end its monopoly in strategic technology. So it goes slow and puts many conditions for the production of 126 Rafale fighter planes. India found manufacturing of Rafale at HAL, Bengaluru, to be highly expensive at Dassault Aviation imposed conditions. Rightly the Prime Minister took the initiative to cancel it and settle for purchase of 36 planes for two Indian Air Force squadrons. It gives the IAF advantage of having less dependence on a few sets of planes. Strategically, it suits IAF to have varied technological wonders.

The Airbus Group pledge to increase sourcing of parts from Indian companies in the next five years should be considered a $2 billion gain. Airbus is a European consortium. Hollande could not have taken the decision alone. He must have got support from other European leaders. The deal speaks volumes. It would boost jobs in India.

The deals with France are all at government to government level. This does away with the procedures for floating tenders and that had often in the past been a route for employing unbusiness-like methods. This fulfils Modi’s dream to keep graft under check.

His meeting with the heads of Canadian pension funds and banks shows the interest of business. Canada and India will also implement plans to complete a comprehensive trade deal by September, 2015, Canadian Prime Minister Stephen Harper has stated. Trade between the two countries remains limited: Canada exported $3.1-billion in 2014, compared with $19-billion to China.

“Trade negotiations are never easy,” says Harper. “But there is nothing about India – particularly given that it is a vibrant democracy – nothing that would preclude us from being able to ultimately conclude negotiations. But look, there are many issues to be resolved, and both Prime Minister Modi and I are determined to move forward.” Canada and India are likely to conclude investment protection treaty in the next few months.

In immediate monetary terms the gains are limited. But it opens up avenues and the three countries are likely to look at India in a new way. The free trade deal –FTA- with Europe is not easy. The visit has opened up India’s vision to boost manufacturing so that new destinations could be conquered. ---INFA

(Copyright, India News and Feature Alliance)