India-EU trade deal runs into liberalization hurdle.

New Delhi: The proposed free trade pact between India and the European Union is stuck because India has failed to open up sectors such as legal and postal services for foreign investment and further liberalize sectors such as banking, insurance and pension, besides the contentious multi-brand retail.

Admitting this for the first time, a top commerce ministry official said the deal is unlikely to materialize unless India allows higher foreign investment in some of these sectors. “The future of the deal is now at the hands of the politicians,” the official said, requesting anonymity.

After the ongoing Parliament session is over on 22 May, the deal could still be sealed if the government pushes through some of the reforms till it gets busy with the presidential elections in July, he said. After that, the assembly elections in Himachal Pradesh and Gujarat by the end of the year may limit the scope of any significant policy decision, he said.

The government has become even more cautious in carrying out key economic reforms after it had to postpone its decision to allow 51% foreign direct investment in multi-brand retail following protests from opposition parties and some key allies such as the Mamata Banerjee-led Trinamool Congress. A decision on a less politically contentious issue of allowing FDI in the beleaguered aviation sector by foreign airlines has also been delayed even after open support from key ministries within the government.

Talks for the bilateral trade and investment agreement between the two sides started in 2007. Both sides have missed at least five deadlines, the latest being in April, to complete the negotiations. They held the 14th round of talks in the last week of April.

According to the EU, India is expected to gain €5 billion and the EU at least €4 billion in the short-term alone. The EU as an economic bloc is India’s largest trade partner. In 2010, it imported goods valued at €33.2 billion from India and exported goods worth €34.7 billion. Services exports to India stood at €9.8 billion and imports at €8.1 billion.

The deal is not making headway because India does not have the laws in place, according to Arpita Mukherjee, professor at the Indian Council for Research on International Economic Relations, a Delhi-based think tank.

“India’s approach of ‘give nothing and get nothing’ in trade negotiations does not work with the EU,” Mukherjee said. “They want a solid package which they can sell to their domestic stakeholders, especially when their economy is not doing well.”

She said India is also not able to derive a good package in services from the EU because it has nothing to offer in return.

Joao Cravinho, EU ambassador and head of delegation to India, told reporters last week that he expects the negotiations to be concluded by the the end of this year.

However, he said clarity on issues such as duty concessions on wines and automobiles from the Indian side and liberalizing the visa regime for Indian professionals from the European side needs to be worked upon.

Cravinho hoped that greater clarity is expected on the pact during the scheduled June visit to Brussels by trade minister Anand Sharma.

“We hope when minister Sharma goes to Brussels, there will be an occasion for some clarity on the horizons,” Cravinho said. “When the political leadership meets in June, perhaps we can have a breakthrough.”

On the visa issue, Cravinho said: “We can liberalize the visa regime. I hope we can significantly improve the opportunity for India to send people to EU to send people to send services to European companies.”

Source : livemint.com