India-EU deepen ties: Focus on defence, security, and FTA amid Ukraine crisis and trade negotiations

India-EU deepen ties: Focus on defence, security, and FTA amid Ukraine crisis and trade negotiations

Sub: Eco

Sec: External Sector

Context:

• India and the European Union (EU) are set to enhance their defence, security, and economic ties in 2025, with a series of key proposals on the agenda.

Areas of cooperation:

• Defence and Security Cooperation: The EU plans to deploy a liaison officer at India’s Navy’s Information Fusion Centre to strengthen maritime security in the Indian Ocean. Additionally, counter-terrorism cooperation, especially concerning the use of commercial drones, will be a priority.
• Ukraine Conflict and Sanctions: The EU is seeking India’s assistance in enforcing sanctions against Russia. India maintains a neutral stance, advocating dialogue and diplomacy for regional stability.
• FTA Negotiations: India and the EU are negotiating a Free Trade Agreement (FTA), with the tenth round scheduled for March 2025 in Brussels. The EU seeks lower tariffs on whiskey, wine, and automobiles, which face high protection in India. An EU official noted that India’s market remains relatively closed to key European exports.

India is concerned about protecting domestic industries, particularly small enterprises and sectors like steel and aluminium from potential higher duties due to the EU’s Carbon Border Adjustment Mechanism.

• Connectivity and Technology: India and the EU continue to focus on improving connectivity, including the India-Middle East-Europe corridor and undersea cable connections. Technological collaboration in areas like green hydrogen, electric vehicle batteries, and space tech is also a priority.

Open and Closed Economy:

• An economy is divided as an open economy or closed economy based on the free movement of labour and capital with other countries in the world.

Closed Economy:

• An economy that does not engage in international trade (no exports or imports).
• Features:
  • Self-sufficient; relies only on domestic production.
  • No foreign investments or capital flows.
  • No dependency on global markets for goods, services, or resources.
• Example: North Korea follows a largely closed economy model.

Open Economy:

• An economy that engages in international trade and financial transactions.
• Features:
  • Imports and exports of goods and services.
  • Foreign investments and capital inflows/outflows.
  • Integrated with global markets; affected by external economic conditions.
  • Normal residents of an open economy are free to move or work in the domestic territory of other economies. Thus, Gross Domestic Product and Gross National Product are not the same.
• Example: USA and most modern economies operate as open economies.

Advantages & Disadvantages:

India’s Economy:

• India follows a mixed model: a largely open economy with some protectionist policies (e.g., tariffs on key imports).
• Liberalization in 1991 significantly opened India’s economy to global trade and investment.