India is changing, and Europe is missing out. India is now the world’s fastest-growing economy, ahead of China, and the European Union is both its biggest market and biggest trading partner. The two unions share common values and democratic political systems. Yet Brussels has not found time to meet Prime Minister Narendra Modi, and trade talks are deadlocked.

Europeans are frustrated by India’s complexity, fragmentation, and changing rules. But, while European firms complain about the difficulty of doing business across the diverse Indian subcontinent, few realise that Indians feel exactly the same about Europe. Indians tend to approach Europe through bilateral relationships with each member state, rather than treating it as a whole.

The North–South divide pits Europe as a giver of lessons against an India that often will not accept them – an India that can say no. Add this to India’s defensive and anti-interventionist international stance and Europe’s increasingly centrifugal trends, and India–Europe relations begin to look like a car crash.

On ECFR’s recent trip to India, we heard the following comments from senior voices, both Indian and European:

“Europe summons up a big yawn for us.”

“Don’t treat India merely as a benign 5,000-year-old civilisation.”

“There is no commitment from the top in Europe on cooperation with India. All it brings to us are complaints about climate change and human rights.”

“European defence starts in the Hindu Kush.”

“India may be a difficult partner. But contrast the EU’s attitude with US, over a decade and three administrations, which has led to a breakthrough in its relationship with India, now coming to fruition.”

We could go on. This collection of essays from leading Indian thinkers, about their country’s state of affairs, economic prospects, and international activism follows a week-long series of encounters in September and October 2015 between ECFR Council members, leading European journalists, and a range of Indian voices – from government and politics to business, the media, and think-tanks. During this trip, participants heard many wise insights, along with harsh assessments of the status quo and calls for changes.

The EU and India: Common ground

India and the EU have much in common. Both are societies caught in perpetual debate, defined by the difficulty of reaching and implementing strong common strategies. Both take great pride in their democracies, and both are under pressure from hardnosed authoritarian neighbours.

India has 29 states and seven union territories, with a patchwork of communities, languages, and religions. It maintains a delicate balance between central and state powers (the word federal is avoided, as it is in Europe) amid controversy over transfers and uneven development. There is tension in foreign policy between the soft power that is a heritage of the Gandhi-Nehruvian era, and a realist hard-power streak; it has a troubled neighbourhood policy, with the looming shadow of a big and resurgent power on its borders. All this could be the European Union as much as the Indian union.

India has 29 states and seven union territories, with a patchwork of communities, languages, and religions

Indeed, it’s not that the EU and India don’t interact, especially in terms of trade. The EU is India’s biggest market, and, because much of its trade goes via Dubai, the amount is underestimated. Europe is also the biggest source of foreign investment in India – though many European firms operate from Mauritius or Singapore shell companies for tax reasons.

Like Europe, India has missed the boat on mega trade deals: while the Obama administration has successfully concluded its Trans-Pacific Partnership (TTP) with 11 nations, India has no major initiative save joining the Regional Comprehensive Economic Partnership (RCEP),^[1]  and the EU has not yet reached a deal with either India or Japan.^[2] 

Europe’s disconnect with India

All this common ground should be a basis for mutual understanding and strategic convergence.^[3]  However, two weaknesses do not make a strength.  There has been no EU–India summit since 2012 – after a run of 12 since 2001 – though the need for strategic dialogue has greatly increased. Europe actually crafted a Joint Action Plan for strategic cooperation in 2005, whose first two points were about increasing dialogue.^[4]  It is now all but forgotten.

Modi is a globetrotter and will have visited four European capitals by the end of November 2015, but has not yet met with Brussels.^[5]  This could be explained by the thin ranks of diplomats in India’s vast bureaucracy, or by the European Commission’s many silos, but there are harsher realities at play.

The EU is saddled by a disconnect between member states who compete fiercely over the Indian market, and those who hold back due to criticism on religious or human rights grounds

On Europe’s part, its claim that “India and the EU, as the largest democracies in the world, share common values and beliefs”^[6]  has given way to sniping at India’s failings. Many of the European Parliament’s actions on India concern the area of human rights. The two unions have launched anti-terrorist cooperation, but, as one commentator pointed out during our visit, “Europe’s condemnation of capital punishment conflicts with routine praise for India’s legal system”. Since 2005, there have been only three executions in India (all related to the New Delhi and Mumbai terror attacks of 2001 and 2008). In the same period, there were 472 executions in the United States, and an estimated 50,000 to 80,000 in China – has the EU been as strong a voice in these cases? India is stubborn too. In 2013, the arrest of an Indian diplomat to the United Nations over a nanny visa issue sparked a major row between India and the US.

European policy towards India is not fully coordinated. As one arm of the European Commission was reviving trade negotiations in summer 2015, another declared a ban on India’s generic drugs. More generally, the EU is saddled by a disconnect between member states who compete fiercely over the Indian market, and those who hold back due to criticism on religious or human rights grounds.

On trade and investment, India’s large-scale central government projects and the flowering of initiatives by state governments challenge the conventional way of doing business for European member states, who would find it easier to deal with a more unified partner.

Modi and illiberal India

The arrival of Modi’s Indian People’s Party (Bharatiya Janata Party, BJP) with the largest majority in 30 years has triggered some illiberal trends. Hindu nationalism has led to state bans on beef consumption, and NGOs are challenged on their foreign sources of financing. Greenpeace has been particularly targeted.^[7]

[Modi] is now accused of being less effective than he proclaims; in the words of one wry commentator, he is “a lamb in wolf’s clothing”

Though Modi has a clear majority in the Lower House, he does not control the Upper House – yet. Some of his reforms have therefore been initiated by the government under an act which allows for temporary promulgation between parliamentary sessions. It is still a far cry from Prime Minister Indira Gandhi’s infamous 21-month Emergency which allowed her to rule by decree in 1975–1977. In fact, Modi has now desisted from this strategy, and follows parliamentary procedure to the letter. Ironically, he is now accused of being less effective than he proclaims; in the words of one wry commentator, he is “a lamb in wolf’s clothing”.

Modi and the BJP have no monopoly on intolerance. As we heard on our visit, “left and right alike have displayed authoritarian tendencies”. And Hindu nationalism, or hindutva, exists in the two major parties – among the 54 who compete for attention at the national level.

The roots of Modi’s appeal

More important for our analysis are the factors that lie behind Modi’s mass popularity.

The first is his mastery of communications and social media, which is in effect nationalising political campaigns across India’s fragmented constituencies and bypassing the traditional media, of which he is wary. A striking example is the success of the #GiveItUpMovement: a campaign to encourage those who can afford it to give up their liquefied petroleum gas (LPG) subsidy. Six months later, the government claims that three million people have responded to Modi’s appeal, and that it will save INR 4.8 billion of public money (around €66 million).^[8]

The second factor is Modi’s appeal to the aspiring middle and lower-middle classes, a group that is composed of urban dwellers and of those who dream of becoming urban dwellers. In the latest Pew poll on India,^[9]  87 percent of respondents (and 74 percent of supporters for the opposition Congress Party) had favourable views of Modi. Officially, India’s urban population is around 30 percent. Unofficially, it is 50 percent – although 17 percent of these live in slums. Some 40 percent of schoolchildren (31 percent in rural areas) attend fee-paying private schools.

The third factor behind Modi’s popularity is his tactic of incremental change rather than frontal assault on the status quo. As much as he has centralised political power within a small coterie of followers, he is also tactically reaching out to other political forces at state level. A key move has been the devolution of significant fiscal resources to the states themselves, fostering competition among them.

Modi is making a fresh start with India’s neighbourhood, which had been neglected by previous governments

On many Modi policies, the jury is still out. Kicking the thorny issue of a land acquisition act to the states will look like a stroke of genius if state governments move on the issue – but so far, only five have done so. He has retreated on the implementation of a Goods and Services Tax (GST) that would tear down trade barriers between states – but is still promising this by April 2016.^[10]  Clearly, much depends on coming state elections that may reshape the Upper House, and on his success at wooing third parties, often representing disadvantaged castes, that are key to these elections. More fundamentally, after ending some corrupt practices – redistributing coal mines licences handed out in murky circumstances under the previous government – Modi will have to prove to voters that he runs a cleaner house.

Modi is making a fresh start with India’s neighbourhood, which had been neglected by previous governments. He has signed a land border deal with Bangladesh and renewed ties with the Indian Ocean states and Sri Lanka – though attempts to reach out to Nepal have been unsuccessful. It is a welcome development that India has practically admitted its role in supporting Baluchistan separatist groups who have carried out attacks in Pakistan. However, despite Modi’s initial opening to Pakistan’s Nawaz Sharif, it is the Pakistani military and intelligence agencies who hold the key to the thorny India-Pakistan relationship. More broadly, Modi has pivoted east – to Japan, where there are shared interests in corralling China, as well as a kinship with the conservative Shinzo Abe. “A visit to Japan by the chief minister of Maharashtra state may matter more than Modi’s reception at Facebook headquarters”, we were told.

Delivering growth and reform

None of this will matter if India misses its chief goal – annual growth of at least 8 percent. Growth, jobs, inflation, and corruption are the issues that now move voters. The country’s urgent needs in terms of sanitation,^[11]  health, and education require delivery and follow-through – scarce commodities in India’s high-decibel politics. While Modi’s “Make in India” slogan and his new foreign policy approach are the means for the country to tell its story internationally, it is economic growth and the distribution of its benefits that motivate voters. And, unlike in developed democracies, Indians do vote – 67 percent of them – a number that is going up, not down.

[India] is also cursed by its own demons – crony capitalism, and an individualism whose flipside is indifference to public goods

India is changing scale. It has gone through several years of 10 percent-plus growth, and its current rate of 7 percent makes it the fastest-growing economy, just ahead of China: and, if these numbers are disputed, China’s are too. It is blessed by the current international conjuncture of low import prices for energy and commodities plus cheap capital – and it relies far more for growth on its domestic market than on exports.

But it is also cursed by its own demons – crony capitalism, and an individualism whose flipside is indifference to public goods. It is not surprising that Modi is accused of authoritarian leanings in a system where “inefficiency is a tax on democracy”, as we heard on our visit. These issues predate the Modi administration, and require fundamental changes in governance structures. For example, India’s cities are largely controlled by the states, and their expansion is largely informal and ungoverned. The new Smart Cities programme, which aims to use technology to improve India’s cities, may simply be a way to assert central control over some urban development. Modi’s first real failure may be the Goods and Services Tax, which has floundered between many divided interests. Winning state elections in the next 16 months and gaining a free hand will be the real test for Modi and his camp.

Meanwhile, India is charging ahead, in an example of “leapfrogging” development. A national biometrics identity-card scheme – started under the Singh administration – now covers 920 million people. The government is planning to carry out direct subsidy transfers through this scheme, bypassing levels of potential corruption. This goes hand-in-hand with the creation of transaction banks that will enable direct payments for all without the need for a traditional bank account, and with the resurrection of microfinance and microcredit. India’s railways – major real-estate holders – are part of a scheme to develop solar energy, and India has just committed to a 40 percent renewable energy target by 2030, while steadfastly defending cheap coal and rejecting consumption ceilings.

Expect to see several divergent economic Indias rather than a country-wide process. In fact, Modi is promoting a “competitive federalism”

Still, the country faces two major obstacles: first, the global demise of job-rich manufacturing may prevent it from becoming a “second China”. Small, high-tech firms and the service sector will provide more jobs than standard manufacturing. Second, building much-needed infrastructure depends on both foreign investment and state-level funding. Expect to see several divergent economic Indias rather than a country-wide process. In fact, Modi is promoting a “competitive federalism”. In another echo of the EU, this raises the issue of growing development gaps between states, and calls into question the long-term endurance of India as a successful “transfer union”.

Multipolarity as a way of doing business

These issues explain much of the foreign policy of today’s India, turning its back on the long era when it conformed to the colonial vision of a passive state – without the empire or alliances that its masters possessed. India now relies squarely on its undeclared alliance with the US, with alternate suppliers to keep Washington honest.

“Modi is indifferent to the colour of money”, our interlocutors told us. He has welcomed Chinese investment in infrastructure, while increasing ties with Japan, the country’s closest partner in Asia. Israel and Iran – with which India always maintained contact, even while being forced to implement sanctions – also rank as special relationships. Russia is there for the long haul, and can be used, like other emerging centres of the multipolar world, to allow India to say no to the established powers. In fact, India’s use of the BRICS or BASICS is largely defensive, in response to the lack of recognition for its interests in global governance structures. US policy – clinging to shares of reserves and voting rights inside the International Monetary Fund (IMF) and World Bank system – is criticised at the highest level in Indian government, while Europe’s acceptance of the need for reform unfortunately goes unnoticed.

India’s reaching out under Modi is clearly self-interested – garnering investment and technology while corralling China is the name of the game. But isn’t India’s market of 1.3 billion people a desirable option for European companies? At a moment when the US is reaping the reward for years of patient groundwork with a concluded Trans-Pacific Partnership, Europe should pursue the EU–India free trade agreement (FTA) as a priority, instead of letting issues such as a quarrel on drug certification derail it.

At a strategic and global level, India matters to Europe. Despite its rivalry with Pakistan, India has been a key supporter of governance in Afghanistan. Should the Taliban (or chaos) win the day there, the current flow of refugees to Europe will vastly increase. India has moved from a traditionally sovereigntist and defensive stance to advocate freedom of navigation on the seas. Shouldn’t Europe build on that, given that it shares the same strategic interest in guaranteeing future trade flows? India will also be a key partner for an Iran reintegrated into the international community.

These avenues all point towards the need to refocus European policies. Here, the key challenge is Europe’s perception of India. On our trip, those we spoke to repeatedly tore down the conventional wisdom:

“Multilateralism is a weapon of the weak, and we are growing strong.”

“The sell-by-date of the Non-Aligned Movement has arrived.”

“India has all the attributes of a great power – the cost of not exercising this power is subordination to China.”

“India is a $2.2 trillion economy but its informal sector is twice that size – together, it amounts to a $6 trillion economy, closer to that of China.”

“Let’s forget about the G4 and the Security Council seat and be more promiscuous with our alliances, calling on the world to aid our development and build our growing strength.”

None of the above should preclude India facilitating greater access for its European partners. But a fresh start between the two unions requires a realist vision of India’s goals and its prospects of achieving them.

^[1]   RCEP, which was started by the Association of Southeast Asian Nations (ASEAN) with six non-ASEAN partners since 2011, is generally regarded as a case of shallow trade liberalisation.↩

^[2]   India may be ambivalent about a free trade agreement, since exports are only 5 percent of its GDP.↩

^[3]   Pallavi Aiyar, “Multi-ethnic India an answer to EU-skeptics?”, Yale Global Review, 19 November 2014, available at http://www.gatewayhouse.in/multi-ethnic-india-an-answer-to-eu-skeptics/.↩

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