EU warns India on lapse of investment protection deals
It was a week of volatility for stock markets across the globe with India being no exception. After putting aside unfounded fears triggered by Donald Trump’s victory, the Indian stock markets, much like their global peers, reclaimed much of its lost ground on Thursday, but ended the week lower by over 2%. The Sensex, a barometer to gauge the mood of the broader market, stood at 26,818 levels at Friday’s close. Although Prime Minister Narendra Modi’s master stroke to fight the menace of black money is being seen quite positively by investors, the fact that the demonetisation move would contract the consumption demand in many sectors dampened investors’ sentiments. “There is also a fear in the market that less discretionary spend (less demand) might take Indian economy towards a deflationary path in the next two to three quarters,” says a Delhi-based stock analyst. The industries that are likely to see subdued demand for at least next two quarters are real estate, FMCG, apparels and auto as there would be less cash in the system to buy goods and services from. “But going forward, we are positive on the Indian market on the back of lower inflation, improvement in rural sentiment and the stronger (commitment for) reforms,” says Vaibhav Agrawal, Head of Research, Angel Broking. The demonetisation move is also seen by many as the start of the virtuous cycle benefiting Indian economy in a big way. Indian markets would also get a big boost from domestic issues many of which are being deftly handled by the current government. The possibility of the Sensex reaching over 31,000 levels by March 2017 looks realistic based on expectations of reduction in corporate tax to 25% as promised by the Modi government. Moreover, lower inflation, due to the demonetisation move, is expected to bring down interest rates further, thus benefiting many small and medium enterprises which remain largely dependent on banks for their borrowing needs. The rally seen in banking stocks indicates that the demonetisation move would steer huge quantum of money (as deposits) with Indian banks. “The larger deposit base should encourage banks to do onward lending (hopefully) at cheaper rates,” says Mustafa Nadeem, CEO, Epic Research Pvt. Ltd. Markets elsewhere have also come to terms with the triumph of Trump, thinking possibly that “President” Trump would be less rhetoric in his action than “Candidate” Trump. Market watchers are upbeat that the two events (Trump and demonetisation) are quite positive for India in the medium to longer term. The huge arbitrage that Indian IT professionals provide to the American economy cannot be easily ignored by Trump. NEW DELHI: A top European Union official sounded the alarm on Friday that efforts to revive talks on a trade deal with India could be derailed by the imminent expiry of several bilateral investment protection deals with its member states.
The warning came from Jyrki Katainen, vice-president of the European Commission and a former prime minister of Finland, after he met senior ministers of Prime Minister Narendra Modi’s government in New Delhi.
It signified the neglect into which EU-India relations have fallen after a summit in March, held after a fouryear gap, failed to set out a roadmap for talks on a proposed Broad-based Trade and Investment Agreement (BTIA).
Katainen said the looming expiry of an investment protection agreement between India and the Netherlands could increase the cost to European business of investing in India and nip the wider trade discussion in the bud.
In total, 23 EU members have investment pacts with India and most will end next spring. If they are not extended, so-called sunset clauses mean that the terms of the old deals would remain in force for another 10 to 15 years.
That in turn would preclude talks on an EU-wide investment protection treaty that would be a precursor to the broad-based trade pact.
23 EU members have investment pacts with INDIA AND MOST WILL END NEXT SPRING. IF THEY are not extended, so-called sunset clauses mean that the terms of the old deals would REMAIN IN FORCE FOR ANOTHER 10 TO 15 YEARS.