EU INDIA TRADE

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India is one of the growing economies that will reshape the global economy in the twenty-first century. Europe is the world’s largest trading power. Both sides are involved in negotiations to boost trade and investment at the World Trade Organisation (WTO) and bilaterally through an ambitious Free Trade Agreement.

Our bilateral trade has more than doubled in the last decade, making the European Union Indias number one trade and investment partner. Two-way trade in goods between the EU and India reached EUR 77.3 billion in 2015 or EUR 211 million per day. If we add services, total trade now exceeds EUR 100 billion/year, or EUR 275 million per day!

Moreover, in addition to being the foremost destination for Indian outward Foreign Direct Investment (FDI), the EU is also India’s most important source of inward FDI – after Mauritius – with almost EUR 5 billion of EU outward investment to India in 2014. Investment from India destined for the EU was over EUR 1 billion. At the end of 2014, the total stock of Indian FDI in the EU was EUR 6.7 billion and the entire stock of EU FDI in India was EUR 38.5 billion.

The EU and India hope to increase their trade in both goods and services – as well as investment – through the negotiations for a free trade agreement (better known as Broad-based Trade and Investment Agreement – BTIA) that they launched in 2007.

Europe is the world’s largest trading bloc

The EU is the world’s biggest trader, accounting for 16.5% of the world’s imports and exports. Free trade among its members was one of the EU’s founding principles, and it is committed to liberalising world trade as well.

The EU is the world’s largest exporter of manufactured goods and services and is the biggest import market for more than one hundred countries. It is also the world’s largest single market area, with more than 500 million consumers, as well as the world’s largest foreign direct investor and recipient of foreign direct investment

In this ‘borderless’ Europe, people and products can move freely from one place to another. The 28 Member States of the European Union share a single market, and only the external border and single trade policy. European Union Member States have agreed to pool their sovereignty and follow a standard procedure on international trade. It means there is one negotiation, one negotiator – the European Commission – and at the end of the process just one agreement instead of 28 different sets of trade rules with each of Europe’s trading partners. The Commission also represents the EU Member States in the WTO.

Member State embassies in partner countries are in charge of export promotion and offer a wide range of services to their national operators, including helping them to understand the Indian market better, find local contacts, carry out in-depth research on the market for their goods and attend trade fairs.

TRADE FOR ALL

In October 2015, the European Commission presented ‘Trade for All‘, a renewed trade and investment strategy which takes stock of the crucial developments in world’s economy during the last few years. The plan foresees a responsible approach responding to new economic realities in line with the EU’s foreign policy.

The EU is the world’s biggest trading bloc, and more than 30 million EU jobs depend on exports; on the other hand, 90 % of future global growth will happen outside Europe’s borders. The new strategy will make trade agreements more productive and create more opportunities, thus supporting jobs in Europe. The new policy is also a direct response to the intense debate on trade currently underway in the EU – including the Transatlantic Trade and Investment Partnership (TTIP) that is being negotiated with the United States. It also implements the Juncker Commission’s pledge to listen and respond to the European public’s concerns.

In the words of EU Trade Commissioner Cecilia Malmström. “Trade policy must become more effective, more transparent and more in tune with our values. In short, it must become more responsible. That’s what we’re doing.”

The new strategy makes EU trade policy more responsible by basing it on three fundamental principles:

Effectiveness: Making sure trade delivers on its promise of new economic opportunities. That means addressing the issues that affect today’s economy, including services and digital trade; it also means providing the means and information necessary for ensuring that European small and medium-sized businesses (SMEs), consumers and workers can take full advantage of – and adapt to – more open markets.

Transparency: Opening up negotiations to more public scrutiny by publishing key negotiating texts from all negotiations, as has been done in the TTIP negotiations.

Values: Safeguarding the European social and regulatory model at home. Using trade agreements and preference programmes as levers to for the worldwide promotion of European values such as sustainable development, human rights, fair and ethical trade and the fight against corruption.

These three principles ensure that trade policy benefits as many people as possible.

India is rapidly integrating with the global economy

At 1.25 billion, India is the second-most populous state and the largest democracy in the world. With an annual GDP growth rate in excess of 7.5 % for over a decade, it is now in the world’s top ten largest economies (4th by PPP).

As such, India is an important trade and investment partner for the EU, combining a sizable and growing market with one of the fastest-growing economies in the world – arguably the fastest among the big economies.

Although it is far from the closed market that it was twenty years ago, India still maintains substantial tariff and non-tariff barriers that hinder trade with the EU.

For more information on trade, please refer to the documents and links at the bottom of this page.

Clean energy & climate change

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With 1.2 billion people, India represents the fourth-largest economy and the six largest energy consumers in the world. The demand for power has increased by 6,5% for the 2017 fiscal year, and it is estimated that India’s energy supply will need to double by 2020 and multiply by three to four times by 2031-32 to meet the future need. Up to the challenge, the Indian government has committed to reducing its emission intensity of the GDP by 20-25% by 2020, compared to the 2005 level and also to switch towards green energy by targeting a 100 GW of solar energy capacity installed in the country by 2020.

During the EU-India Summit in 2016, an India-EU Clean Energy and Climate Partnership was announced to reinforce cooperation on implementation of the Paris Agreement by strengthening joint activities for deployment of climate-friendly energy sources. Under the Clean Energy and Climate Partnership, the EU supports a wide range of initiatives for low carbon energy production, thereby contributing to the mitigation of global climate change.

Indian Budget 2020-2021

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Indian Finance Minister Ms Nirmala Sitharaman delivered the longest budget speech on 1st February 2020 to present 2020-2021 of Narendra Modi government 2.2. She started her budget address in the Parliament by paying homage to her predecessor, the late Arun Jaitley, and after that announced vital reforms to address socio-economic aspects. The prominent themes of Union Budget 2020-21 were: 

  • Economic Development.
  • Societal Development.
  • Aspirational India. 

Key highlights of Budget:

Income Tax:                                                                                              Government offered an optional relief to individual taxpayers as it looked to boost consumption. Taxpayers now will be able to avail a lower income tax rate on various slabs by previous certain deductions and exemptions. The new scheme will be optional, and those who want to stick to claiming deductions will be allowed to do so. The new income tax slabs and rates are as under: 

  1. Rs 5-7.5 lakh per annum: 10 per cent from 20 percent earlier. 
  2. Rs 7.5-10 lakh per annum: 15 percent from 20 percent earlier. 
  3. Rs 10-12.5 lakh per annum: 20 percent from 30 percent earlier. 
  4. Rs 12.5-15 lakh per annum: 25 percent from 30 percent earlier. 

 In both the old and new regime, all income below Rs 5 lakh per annum will be tax-exempt.

Real Estate:                                                                                                                 To boost affordable housing in India, Budget has proposed to extend the date of loan sanction for availing additional deduction of Rs 1.5 lakh by one year to March 31, 2021. Property developers will also get a tax holiday on the profit earned on affordable housing projects for availing this tax holiday by an additional year.

Dividend Distribution Tax:
In a move that will offer some relief to India Inc., the government abolished the dividend distribution tax that levied on dividends issued by companies. So far, companies were required to pay DDT at 15 per cent, though including surcharge and cess put the effective rate at 20.56 per cent. DDT first time introduced in 1997 at a 7.5 per cent flat rate in an effort towards efficient tax collection.

Fiscal Deficit Target For 2020-21:
Escape Clause Invoked India’s budgetary deficit settled at 3.8 per cent in 2019-20 and targeted at 3.5 per cent in 2020-21, Finance Minister Nirmala Sitharaman said. Importantly, the government has decided to invoke the ‘escape clause’ provided for in 2018 amendments to the Fiscal Responsibility and Budget Management Act. For 2019-20, the fiscal deficit estimated at 3.3 per cent in Budget 2019. For the next financial too, the government will deviate from an earlier set financial path and target a fiscal deficit of 3.5 per cent.

PMC Bank Collapse:
In Bank Deposit Insurance Cover The government has proposed to hike the bank deposit insurance cover to Rs 5 lakh from the current Rs 1 lakh, to protect depositors in the event of a lender’s collapse. The decision comes after the collapse of PMC Bank that led to restrictions on deposit withdrawals. According to the Reserve Bank of India’s Financial Stability Report, the Deposit Insurance and Credit Guarantee Corporation has received total claims of about Rs 14,100 crore across defaulting cooperative banks.

Life Insurance Corporation (LIC):
The government has proposed to sell a part of its stake in LIC through an initial public offering, the finance minister said in her budget speech. While she didn’t divulge any details, the news of a LIC listing sent insurance stocks scurrying for cover. The state-run insurer was established in 1956 and, wholly owned by the Government of India.

New Infrastructure Projects:
100 New Airports, 5 New Smart Cities, 10,000-Km Gas Grid announced in Budget. The finance minister allocated Rs 1.7 lakh crore for a National infra Pipeline that aims to improve ease of living for every citizen of our country and provides a massive opportunity for employment. Finance Minister proposed to set up a project preparation facility for infrastructure projects. This programme would actively involve young engineers, management graduates and economists. She also proposed to divert all infrastructure agencies of the government to engage youth power and startups,” Sitharaman said. National policy will soon be released, Minister said.

Key Highlights Of The Plan:

  • National infra pipeline of Rs 106 lakh crore addresses the country’s needs.
  • To set up a project preparation facility for infrastructure projects.
  • National logistics policy to be released soon.
  • Logistics policy to create a single-window e-logistics market.
  • Delhi-Mumbai Expressway to be completed by 2023.
  • To monetise 12 lots of highway bundles by 2024.
  • Indian Railways commissions 550 wifi facilities.
  • Solar power capacity to be set-up alongside rail tracks.
  • Four station redevelopment projects to be done through the PPP model.
  • More Tejas-like trains to connect iconic tourist destinations.
  • One hundred more airports to be developed by 2024.
  • To provide 20% equity, external assistance for metro projects.
  • To provide Rs 22,000 crore for power, renewable energy in FY21.
  • To expand the national gas grid to 27,000 km from 16,200 km.
  • Aim policy to enable the private sector to build data-centre parks.
  • Fibre-to-home through Bharat Net to link 1 lakh gram panchayats.
  • Propose to provide Rs 6,000 crore to Bharat Net.
  • To initiate two national-level science schemes.

 

Vivad Se Vishwas:
To Reduce Direct Tax Litigation, The finance minister announced the ‘Vivad Se Vishwas’ scheme for tax litigation under which only the disputed tax amount will have to be paid on or before March 31, 2020. No interest or penalty will be charged. People who pay after this deadline, but before June 30 will have to pay some charge, Sitharaman said during her speech.
Key Highlights Of The Vivad Se Vishwas Scheme:
To reduce direct tax litigation.
To amend the Income Tax Act to enable faceless appeal. Under the scheme, assessee to pay only tax amount, not interest, penalty.
March 31 deadline for paying tax claim, avoid interest, penalty.
Those who avail after March 31 but before June 30 will have to pay some extra amount.

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Government’s Disinvestment Target:
Doubled to a lofty Rs 2.1 Lakh Crore India has set itself the highest-ever disinvestment target for 2020-21 even as it missed its previous goal. The central government aims to garner Rs 2.1 lakh crore through divestments in 2020-21, according to Union Budget 2020-21 documents. Of this, it expects to earn Rs 90,000 crore by selling a stake in public sector banks and financial institutions, while the balance Rs 1.2 lakh crore will come by selling a stake in central public sector enterprises.
In 2019-20, the government had hoped to earn Rs 1.05 lakh crore through divestment receipts. That has now been revised lower at Rs 65,000 crore.

FPI Limit In Corporate Bonds Hiked: The government plans to increase the investment limit of foreign portfolio investors in corporate bonds from 9 per cent to 15 per cent, Sitharaman said. The finance minister said specific government securities would be open for foreign investors. She also proposed debt-exchange traded funds comprising mainly government securities, while stating that Rs 22,000 crore has already provided as support to infrastructure project pipeline.

Read Full Budget