European Union and India sign historic free trade agreement. How will this event affect the world economy in general and Ukraine in particular

So, the European Union and India successfully signed an agreement that concluded almost 20 years of negotiations on the creation of a common free trade area. From now on, goods from both megaclusters of the world economy (Indian and European) will be sold relatively freely in the domestic markets of India and the EU.

And these markets are among the largest in the world, although with India’s GDP volume (not to mention such an indicator as per capita gross product) lagging behind similar European indicators.

Who gets what?.

The agreement will eliminate or reduce tariffs on 97% of EU exports to India, saving European companies €4 billion a year..

The main success of the European Union is the reduction of duties on imports of European-made cars into India. As you know, India developed its own automobile industry, which was inferior in quality to the products of EU automakers. The Indians protected their domestic market in the traditional way - by introducing duties on cars from the EU in the amount of 110% of the customs value of the car. This fee will now be reduced to 10%.

But duties on auto parts will be reduced gradually over 5–10 years..

India is also sharply reducing duties on agricultural imports from the EU: on olive oil - from 45 to 0%, on wine - from 150 to 75%.

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Duties will also be reduced on 44% of European engineering goods, 22% of chemical industry goods and, most painfully for India, on pharmaceutical goods - by 11% of product groups (India, as you know, is itself one of the world's largest drug producers).

In turn, India will receive a tariff reduction on 99.5% of its goods, mainly on textiles and pharmaceuticals.. For example, Indian textile exports to the EU have already reached 3.6 billion euros per year.

But this agreement is more multifaceted, that is, it affects not only the sphere of trade.

India, one of the world leaders in the development of programming, will receive preferential treatment for the export of services from its IT sector to the EU market.

In addition, the agreement also establishes a favorable regime for mutual investments and technology exchange.. Of course, this will predominantly be the movement of investment and technology from the EU to India, and not vice versa.

Winners and losers.

In the context of trade relations, this agreement is more beneficial for India, although there are certain nuances that must be taken into account.

Europe gains access to a market of 1.4 billion people whose purchasing power is constantly growing. Of course, the solvency of the European population is significantly higher, although its number is smaller (450 million).

But a significant number of goods from India will not be able to find their buyer in Europe due to quality and standardization requirements.

India exports pharmaceutical raw materials and textiles, which are also semi-finished products, to the EU. And the European Union exports complex goods with a high level of added value to India, primarily cars and ready-made medicines.

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The structure of mutual trade is now on India’s side: mutual trade turnover between the countries is 135 billion euros per year, of which 75 billion are Indian exports. That is, EU exports will amount to 60 billion euros. Positive balance - 15 billion euros in favor of India.

Given these parameters, India is more interested in eliminating trade barriers, because usually concluding trade agreements and reducing duties is more interesting for those trading partners who have a positive balance of trade in goods. Conversely, countries with a negative trade balance are trying to increase duties..

Of course, the appearance of European cars on the domestic market will be a painful blow for India, but New Delhi is sacrificing its auto industry in order to attract new technologies and investments from the EU and give an additional impetus to the development of such sectors of the Indian economy as light industry (a factor in the employment of the female population), the IT sector (a factor in creating highly paid jobs for its own talented youth) and pharmaceuticals (the export flagship of the Indian economy).

India already has experience in concluding trade agreements with Europeans.

As you know, in the past there were two European integration projects to create a common market for goods - the continental and alternative British. The continental one eventually transformed into the EU market, while the British one remained as a fragment called the “European Free Trade Association” consisting of Norway, Iceland, Switzerland and Liechtenstein, that is, European countries that are not members of the European Union. India has concluded a free trade agreement with this bloc under the terms of an investment of $2 billion. and creating 200 thousand new jobs.

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Now India has completed the grand slam of free trade with Europe by signing a corresponding agreement with the European Union.

The India-EU agreement is a trade megacluster with a population of almost 2 billion people (a quarter of humanity) and a GDP of $24 trillion. India's contribution is a population factor, EU's contribution is a GDP and technology factor.

In scope, this agreement is comparable to the Regional Comprehensive Economic Partnership (RCEP) agreement concluded in 2020 between China, ten ASEAN countries and four other Asian countries (Australia, New Zealand, Japan, South Korea). This entity has a total market of 2.2 billion consumers and a GDP of $30 trillion.. , that is, exceeds the indicators of the EU-India free trade area, but the figures here are of the same order.

Geopolitical chess game.

India has long been considered as a potential participant in the RCEP; Japan especially insisted on its participation, perceiving New Delhi as a certain balancer to China’s strong Asian influence.

Almost in parallel with the negotiations on India's accession to the RCEP, New Delhi was negotiating the terms of a trade agreement with the European Union. And, as we see, Brussels’ proposal won.

We can say that this was the “battle of the century” to pull India either towards the Sinocentric Asian project, or towards the development of a pro-Western westernized project in this country.

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By all indications, India is, relatively speaking, China 30 years ago: still growing demographics, high rates of economic development (6–8% per year), a large “acceleration lane” for increasing GDP. Today, India's gross product is $4 trillion.. , and China - 20 trillion, which means the multiplier effect of the Indian economy is at the level of 1:5 in the next 20-25 years. By 2050, India will grow rapidly, catching up with the Celestial Empire, whose demographic dynamics, on the contrary, will decline during this period.

In the context of the formation of a new “mongolosphere” as part of the duumvirate of China and the Russian Federation or a quartet with the addition of Iran and the DPRK, the key force vector for containing the formation of the Global Eurasian Island (consisting of the four countries listed above) for the West becomes the “Great Turan” project (Turkey, Azerbaijan, Central Asian countries). India occupies a traditionally neutral position in this confrontation between land Eurasian empires, quasi-empires and post-imperial formations.

However, its drift in one direction or another may, accordingly, tip the scales of geopolitical confrontation.

Who knows whether India’s participation in BRICS and demonstrative interaction with China and the Russian Federation have become tools for bargaining for more favorable development conditions from the countries of the Western megacluster?

Once upon a time, China, with a demonstrative attack on the Soviet island of Damansky, demonstrated to Washington that it is not the geopolitical shadow of the Soviet Union and the factor of communist ideology is not an oath of eternal allegiance to the countries of the “socialist camp”.

After those events, the famous Nixon-Deng Xiaoping plan was activated, when the synthesis of America and China (Chimerica) helped the United States win the Cold War, and the PRC modernize.

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Of course, as a result of this Kissinger strategy, the United States raised its number one strategic enemy with its own hands, in vain hoping for the democratization of China from within by forming a middle class layer in its social patterns.

Will the EU develop enemy number two for the West in the form of India

So far we do not see Indian projects for geopolitical expansion on other continents: Africa, Latin America. Unlike the same China.

However, the situation is changing. Currently, India does not have a global project like the Chinese Community of Shared Future for Humanity. In general, India is a geopolitically closed country. Like a certain patchwork microcosm. But India has ideas, so to speak, of regional messianism, directed towards countries such as Pakistan, Bangladesh, Nepal. That is, the situation may change dramatically as the Indian economy builds its economic muscles.

“Two elevators” strategy.

The West’s tactics here consist of a kind of “two elevators” model. Imagine that a person is standing on the roof of an elevator, and if it reaches the top floor, it will crush him. The movement is only upward and the elevator moves while a person is standing on its roof. In this case, there is only one tactic left: alternately jump from the roof of one elevator to the roof of another, periodically stopping the upward movement. On the one hand, this is a bad tactic: someday two elevators will reach the top floor and crush their passenger on the roof. On the other hand, this is the only possible strategy if the movement itself cannot be stopped completely. This is a tactic to gain time and temporarily save life..

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In our story, the two elevators are China and India, rapidly moving upward, and the passenger is the Western megacluster. Until this time, he was riding on the “roof” of China, but the upward movement of the Celestial Empire acquired threatening parameters - the concrete ceiling of the last stop was approaching with all inexorability. There is only one backup option left - jump to the roof of another elevator.

Modi's economic model.

What about India itself Prime Minister Narendra Modi formulated a new “trimurti” of economic growth and development:.

model of tax cuts following the example of “Trumponomics” in the USA;

stimulating exports through the reception of Chinese experience;

implementation of large infrastructure and macro-regional projects.

The “triad of trust” should also come to India’s aid, when business trusts the state, entrepreneurs trust each other, and the population trusts business.

All this is largely analogous to the Chinese model: soft monetary stimulus, tax cuts, regional infrastructure projects.

India has decided to return to the classics when top officials quote the local source of wisdom - the Thirukural: “Make money - there is no sharper weapon to overcome the pride of your enemies.”.

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The only problem is a kind of cognitive and semantic shock. The country had just decided to say goodbye to “Vedic socialism”, using partly neoliberal tools in the form of inflation targeting, mass privatization and banking sector reform, when this entire recipe found itself in a deep semantic crisis due to the global fragmentation of the world economy and the crisis of globalism.

Challenges and opportunities for Ukraine.

Even before a full-scale war, Ukraine missed its chance to conclude its “mother of all trade agreements” - a free trade agreement with India.

Now there is a chance to use the potential of combining these agreements: Ukraine with the EU and the EU and India. This effect is called " In simple terms, trade agreements set a certain level of localization of production of goods in order for them to fall under the agreement, for example, 60%. That is, you cannot buy goods in China and sell them in the EU without duties like Ukrainian ones. A certain level of localization must be achieved (these levels are determined by the trade agreement). But when the EU has several agreements, in particular with India and Ukraine, then the level of localization of these countries is added.

That is, to export the same medicines to the EU, the level of localization of production of raw materials in India will be added to the level of localization of production of finished medicines in Ukraine. This means that it will be easier for both Indian and Ukrainian companies to fulfill the requirements of the localization agreement.

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On the other hand, India is becoming the largest development project of the EU and the USA as a check on the growth of China, including the Spice Route project as opposed to the Chinese New Silk Road.

That is, almost all free liquidity flows in the form of investment from the EU will go to India, just as foreign direct investment flows once went from the US to China.

India will also become the largest technological recipient for the EU.

In this regard, Ukraine's reconstruction projects will face serious competition from Indian development projects.

In addition, transporting to the EU the paper investment “trash” that our delegations are transporting to Lugano, London, Berlin and Rome at the reconstruction conference will be absolutely pointless. Because in these financial centers there will already be real projects from India worth hundreds of billions of dollars.

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