In the first such offer made during trade deal negotiations, India is working on a “new chapter” aimed at extending long-term regulatory certainty in the domestic manufacturing sector to attract investment from the European Union (EU), The Indian Express has learnt.
This comes in the backdrop of shared concerns between India and the EU over Chinese overcapacity, which is viewed as a threat to domestic manufacturing of critical products such as pharmaceuticals, electronics and defence requirements, among others.
“In the EU deal, one of the new chapters that has come in is about investment in non-services, which is a new element where they (EU) are looking at certainty on the commitments for FDI in non-services sectors — basically the manufacturing sector,” a senior government official said.
“There are two parts to it. One is deciding on sectors where India will allow 100 per cent FDI. Second, there are a number of conditions on things such as ‘local employment’, ‘local value addition’, ‘use of local raw materials’ and conditions around whether there will be local partners and joint ventures or not,” the official said.
Another person aware of the development told The Indian Express that the government had undertaken extensive stakeholder consultations to work on the investment chapter that was offered to the EU during the last round of negotiations.
This comes as India has begun seeking to attract investments from Western countries in exchange for lowering tariffs on key sectors. For instance, India has allowed 100 per cent FDI in telecom for the UK under the trade deal. In the insurance sector, the FDI ceiling has been kept at 74 per cent, providing investment certainty for UK insurers. A similar strategy was followed in the European Free Trade Association (EFTA) deal.
India and the four-nation EFTA — an intergovernmental grouping comprising Iceland, Liechtenstein, Norway and Switzerland — signed a trade pact in March 2024, under which EFTA countries have committed to investing $100 billion in India over a 15-year period. However, officials indicated that the investment chapter in the EU deal would be far more extensive and legally robust.
Shared challenge of China
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India and the EU have both been facing several challenges, particularly in the renewable energy sector. Another government official told The Indian Express that the Indian industry has been encountering pricing challenges, especially while trying to scale up the solar energy sector, and that India will have to work with “Western countries” to achieve competitiveness and tackle the China challenge.
According to a parliamentary report released last year, the EU is concerned about China’s dominance in critical technologies, as China holds a leading global manufacturing position in several areas, exposing the EU to potential risks. The EU has said these sectors include raw or processed materials for robotics, as well as clean technologies including solar PV wafers, EV batteries and wind turbine blades.
“Despite a general decline in Chinese FDI into the EU since 2016 and a shift towards greenfield investments, China still holds stakes (full or partial ownership) in critical EU activities and infrastructure. These include automotive, fintech, advanced manufacturing, ports and shipyards, and electronics,” the parliamentary report said.
India–EU negotiations making progress
An EU trade deal status report earlier this month stated that India and the EU had made substantial progress on the text dealing with “services and investment”, marking a significant step forward towards concluding the Free Trade Agreement (FTA) that both sides aim to sign by the end of the year.
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The EU report also noted that negotiators had made substantial progress on the investment text, and that they had also made very good progress on rules for state-to-state mediation. Progress on dispute settlement is significant, as it suggests a breakthrough on long-standing EU concerns regarding investment protection in India.
A European Parliament report had earlier expressed regret that “uncertainties remain for EU investors, notably as a result of India’s decision to unilaterally terminate all its bilateral investment treaties (BITs) in 2016”. However, India has since begun addressing the issue by negotiating new investment treaties under a revised framework.
New chapter
With Brussels looking at certainty on the commitments for FDI in India’s manufacturing sector, investment in non-services opens a new chapter in the deal with the EU. The government had undertaken extensive stakeholder consultations on the investment chapter.
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