India resists EU’s capital flow oversight citing sovereignty concerns

India has pushed back against a European Union (EU) proposal under ongoing Free Trade Agreement (FTA) negotiations that seeks to give the 27-member bloc oversight on decisions related to capital flows, citing concerns over sovereignty,according to information.The proposal, which is considered unusual in most FTAs, has triggered apprehension in New Delhi as it could restrict India’s ability to act independently during financial or balance of payments crises. Both sides aim to conclude the long-pending trade pact by the end of 2025.
Concerns Over Crisis-Time Policy Autonomy
According to information,in its draft, the EU suggested the formation of an oversight committee on trade in services and investment policies, which would review policy actions, including those taken during crises. India fears such oversight could allow the committee to question or even reverse emergency measures such as restrictions on capital flows, thereby compromising sovereign decision-making.India has in the past imposed restrictions on outflows, including during the 2013 currency crisis, and retaining that flexibility is critical, stated official.India has sought clarity on whether emergency measures could be overturned if the committee deems them inappropriate. Accepting such a clause, officials believe, would limit India’s powers on domestic economic policy and undermine its push for balanced trade agreements with other partners, including the U.S. and Australia.
Imbalance in Safeguard Powers
While the EU seeks oversight over India’s capital flow restrictions, the bloc proposes retaining the right to impose temporary curbs on capital outflows during its own economic difficulties. Indian negotiators argue this creates an imbalance in safeguard powers and deviates from the EU’s existing FTAs with Vietnam, Singapore, and South Korea, which allow both parties to act unilaterally under exceptional circumstances.“Such a proposal does not align with global practice and poses risks to our financial stability framework,”stated a senior trade official .
Trade Talks and Pending Issues
India and the EU currently trade goods worth around $190 billion annually, but the FTA negotiations have been stuck for years due to sharp differences on tariff reductions, climate commitments, and labour standards. The EU has sought lower duties on cars and dairy products and tighter green rules, while India aims to protect local farmers, avoid rigid climate conditions, and retain control over dispute resolution.The European Commission, in its report after the July negotiations in Brussels, said “good progress” had been made on capital movements and payments, though some areas of divergence remain,according to information.Emails sent to the Reserve Bank of India, the Finance Ministry, Commerce Ministry, and the Prime Minister’s Office seeking comments remained unanswered.