Indo-Euro Trade

The Euro has important implications for India. The Euro land accounts for about one-fifth of India’s foreign trade. The European Union as a whole makes up about one-fourth of her total trade. Further, the EU is an important source of aid and foreign investment. Indian companies have significant investment interests in Europe and they also tap the European capital market.

Indian businessmen benefit, like their counterparts in other countries, from the benefits of a single currency instead of many.

According to a study conducted Indian Institute of Foreign Trade, New Delhi, India the Euro will benefit Indian exports as products from this country will become cheaper in the Euro land. According to this study, 15 product groups in the country’s export basket have a price elasticity which will help them to capture a significant portion of the European markets with lower prices. The product groups that will benefit include foodstuffs, fats and oils, plastics, wood articles, textiles, articles of stone, chemicals, base metals, vehicles, vegetables products, wood pulp and pearls.

The study says that the Euro is expected to reduce the transaction costs and help in greater integration of capital markets, while resulting in a higher level of growth in the Euro land.

It says that large business opportunities are, however, emerging in the computer software field. The entire process of re-engineering involved in the introduction of Euro is much more complex than the business associated with the Y2K problem. Indian firms which will take pro-active measures can reap enormous benefits by providing integrated business solutions.

The Euro will also result in greater price transparency throughout the Euro land and this is expected to give a push towards a uniform pricing strategy for different markets. The Euro will not result in a uniform retail pricing structure throughout Euro land because of the divergent cost structure in businesses.

The study says that the pressure to introduce uniform prices will come from the higher end of distribution channel, and Indian exporters will have to redesign their export pricing strategies accordingly.

It says that the Euro changeover requires a dual display of prices, one in the respective national currencies and the other in Euros. This will necessitate several changes in the existing packaging and labeling requirements. If the Euro becomes a strong currency, it will make India’s imports from Euro land costlier. However, if due to greater integration the European firms become more efficient, the exchange-rate-induced price rise may get neutralized by higher efficiency and productivity levels.

The study opines that the advent of the Euro is both a challenge ad an opportunity for Indian exporters and it will now depend on their skills to use it to their advantage.

The EC, taken as a single unit, is India’s largest partner. India’s export to EC grew from Rs 282 crore in 1970-71 to Rs. 1,447 crore in 1980-81 and Rs. 8,951 crore in 1990-91. The corresponding figures of India’s imports from the EC were Rs. 320 crore, Rs. 2,639 crore and Rs. 12,680 crore. In 2001-02, India’s exports and imports with the EU were Rs. 45,524 crore and Rs. 46,771 crore respectively.

The EEC accounts for more than a one-fifth of India’s total foreign trade.

Within the EC, largest trade partners of India have been West Germany and the United Kingdom.

India’s main exports to EC include textiles, jute, leather and leather products, polished diamonds, engineering goods, chemicals, marine products etc. Imports include edible oils, fertilizers, dairy products, steel, capital goods, optical instruments, aluminum and copper products, synthetic rubber and photo and cinematographic goods. India also receives technology, investment and development aid from EC countries.