In the first offer of this type made during negotiations on commercial transactions, India is working on a “new chapter” aimed at extending long -term regulatory certainty in the national manufacturing sector to attract investments in the European Union (EU), the Indian Express learned.
This arises in the context of common concerns between India and the EU on Chinese overcapacity, which is considered a threat to domestic manufacturing of critical products such as pharmaceuticals, electronics and defense requirements, among others.
“In the EU agreement, one of the new chapters that came concerns investment in non-service, which is a new element where they (EU) are considering the certainty of commitments for the IED sectors in non-service-essentially the manufacturing sector,” said a senior government official.
“There are two parts. One decides the sectors where India will authorize 100% IED. Secondly, there are a certain number of conditions on things such as” local employment “,” local added value “,” the use of local raw materials “and conditions to know whether or not local partners and joint ventures,” said the manager.
Another person aware of the development told The Indian Express that the government had undertaken vast stakeholders’ consultations to work on the investment section that was offered to the EU in the last series of negotiations.
This occurs when India has started to seek to attract investments from Western countries in exchange for the drop in prices in the key sectors. For example, India has authorized 100% IED in telecommunications for the United Kingdom as part of the trade agreement. In the insurance sector, the IDE ceiling was kept at 74%, which gives investment certainty to British insurers. A similar strategy was followed in the agreement of the European Free Trade Association (ALEC).
The EFTA of India and the four nations – an intergovernmental group including Iceland, Liechtenstein, Norway and Switzerland – signed a commercial pact in March 2024, under which EFTA countries are committed to investing $ 100 billion in India over a period of 15 years. However, officials indicated that the investment chapter in the EU agreement would be much more extensive and legally robust.
Shared challenge from China
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India and the EU were both faced with several challenges, in particular in the renewable energies sector. Another government official told Indian Express that Indian industry had encountered pricing challenges, in particular while trying to extend the solar energy sector, and that India will have to work with “Western countries” to achieve competitiveness and take up the Chinese challenge.
According to a parliamentary report published last year, the EU is concerned about the domination of China in critical technologies, because China has a leading global manufacturing position in several areas, exposing the EU to potential risks. The EU has said that these sectors include raw or processed materials for robotics, as well as clean technologies, including PV solar platelets, EV batteries and wind turbines.
“Despite a general drop in the Chinese IED in the EU since 2016 and a transition to Greenfield investments, China still maintains participations (full or partial property) in EU critical activities and infrastructure. These include the automobile, fintech, advanced manufacturing, ports and shipyards and electronics, ”says the parliamentary report.
India – EU negotiations make progress
A situation report from the EU Trade Deal earlier this month said that India and the EU had made substantial progress on the text dealing with “services and investments”, marking a significant front step towards the conclusion of the free trade agreement (ALE) that the two parties aim to sign by the end of the year.
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The EU report also noted that the negotiators had made substantial progress on the investment text and that they had also made very good progress on state mediation rules in the State. The progress of dispute resolution is significant because it suggests a breakthrough on the longtime concerns of the EU concerning the protection of investments in India.
A report by the European Parliament had previously expressed its regret that “the uncertainties remain for EU investors, in particular following India’s decision to end all its bilateral investment treaties in 2016” unilaterally. However, India has since started to resolve the issue by negotiating new investment treaties in a revised framework.
New chapter
With Brussels examining the certainty of the commitments of the IED in the manufacturing sector of India, the investment in non-service opens a new chapter in the agreement with the EU. The government had undertaken vast stakeholder consultations on the investment section.
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