France
(Source : Embassy of India, Paris)

Significant Trends in trade and investment (Sources: EoI, E&C Wing Analysis)

Trade – In Jan-June 2017, India France bilateral trade stood at € 5.25 billion (+25.3%) as compared to the corresponding period the previous year. India’s exports to France increased by 17.24% during this period with a rise in exports of following top 10 category products: mineral fuels & oils (201.12%); nuclear reactors, boilers, machinery and mechanical appliances (6.31%); automobiles and parts (51.65%); electrical machinery (14.84%), footwear (2.95%), organic chemicals (2.65%), articles of leather (4.07%) & gems and jewellery (3.31%). However there was a drop in exports of knitted or crocheted articles of apparel & clothing accessories (-2.45%) & non knitted or crocheted articles of apparel & clothing accessories (-1.16%).

Meanwhile, French exports to India increased by 36.61% during the same period: Exports of following top 10 ranked products increased: aircraft & spacecraft (117.03%); nuclear reactors, boilers, machinery & mechanical appliances (72.94%); miscellaneous chemical products (17.58%); electrical machinery & equipment (15.16%); plastics and articles thereof (15.03%); pharmaceutical products (9.51%) & automobiles and components (7.5%). However, exports of optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus & parts thereof fell by 23.74% & those of organic chemicals by 14.71% & iron & steel (-13.22%).

Investment – According to statistics released by Business France, “There are over 150 Indian companies operating in France, where they employ more than 7,000 people. Eleven new investments from India were recorded in 2016, creating or maintaining 171 jobs. Indian investments in France in 2016 were often in high value-added activities, particularly R&D and engineering (36%), decision-making centres (27%), including a European headquarters, and business services (18%). Investments came in a variety of sectors, including software and IT services (18%), energy and recycling (18%), aerospace, naval and railway equipment (18%), and textiles and clothing (18%) sectors. Indian companies invested primarily in the Auvergne-Rhône-Alpes (27%), Ile de France (Paris region) (27%) and BourgogneFranche-Comté (18%) regions. Selected investment projects in 2016 were from:

Royal Enfield [in 2016 this Indian firm announced that it would be establishing its pan-European headquarters in Paris (Ile de France region), with the opening of a concept store in Levallois-Perret]. Guesswork [a winner in French Tech Ticket, season 1, this Indian start-up markets a mobile app that helps small online retailers connect with customers. Guesswork won a one-year residency for 2016 in the Startup42 business incubator in the Parisian suburb of Kremlin-Bicêtre (Ile de France region)]. Etosha: [this specialist in flavours, fragrances and essential oils for agri-food, personal care (deodorants, perfumes and soaps) and homecare (detergents) recently established a French subsidiary in Grasse (ProvenceAlpes-Côte d’Azur region) that will create 10 jobs over the next three years]. Dymond Cleantech: [a winner in French Tech Ticket, season 1, this Indian start-up has developed an electrochemical water purification technology based on diamond electrodes. In 2016, it was resident in the La Paillasse business incubator in Paris (Ile de France region), where it had co-working space and access to coaching sessions].

Romania
(Source : Embassy Of India, Bucharest)

Moody`s changes the outlook on the Baa3 issuer rating of Romania to stable from positive, ratings affirmed

Moody`s Investors Service has changed the outlook on the ratings of the Government of Romania to stable from positive. At the same time, at the rating agency has affirmed the Baa3 long-term issuer rating and senior unsecured ratings, the (P) Baa3 MTN programme rating, as well as the Prime-3 (P-3) short term issuer rating of Romania.

The key drivers for changing the rating outlook to stable from positive are:

(1) The expansionary fiscal policy of Romania that has resulted in a material widening of its fiscal deficit, and which is expected to lead to an upward trajectory in the government debt-to-GDP ratio.

(2) The pro-cyclicality of macroeconomic policy, which has led to rapid wage growth, a deterioration in price competitiveness and a widening of the current account deficit.

These developments are contrary to the economic and fiscal trends anticipated at the time of Moody`s decision to change the outlook to positive from stable in December 2015.

At the same time, Moody`s has affirmed the Baa3 ratings of Romania based upon the underlying fundamentals of the economy and convergence trends regarding wealth and institutional strength under the aegis of EU membership. Although expected to weaken somewhat, the still relatively moderate debt levels relative to GDP and revenue, as well as strong debt affordability metrics, also support the current rating level. Finally, in our view, vigilance from the EU and the IMF are expected to support an anchoring of the economic and fiscal policies of Romania in spite of its fragmented political landscape.

The long-term country ceilings of Romania for local and foreign currency bonds and for local currency bank deposits remain unchanged at A3. Its long-term country ceiling for foreign currency bank deposits remains unchanged at Baa3. Its short-term country ceiling for foreign-currency bonds remains unchanged at Prime-2 (P-2), and its short-term country ceiling for foreign currency bank deposits remains unchanged at Prime-3 (P-3).

RATINGS RATIONALE

In December 2015, the positive outlook on the ratings of Romania were based upon the expectation that the improvement of fiscal and debt metrics would be sustained, and the vulnerability of the economy to external shocks would be reduced. Those assumptions are not supported by the economic and fiscal trends observed since then or by those expected going forward.

FIRST DRIVER: THE EXPANSIONARY FISCAL POLICIES OF THE GOVERNMENT OF ROMANIA

The first driver for moving the rating outlook to stable from positive is based upon the deterioration in the public finance and debt outlook for the Government of Romania. We forecast that its debt-to-GDP ratio will rise over the medium term, after having fallen slightly over the past two years. This is as a result of already implemented and forthcoming fiscal relaxation measures under the "Fiscal Code", that affect government revenue and expenditure.

The fiscal relaxation agenda of the government and the resulting rise in the government debt-to-GDP ratio from this year onwards indicates that Romania has not taken advantage of the favourable macroeconomic and financial market conditions to bring its public debt onto a clear downward trajectory and to restore the fiscal buffers it lost in the aftermath of the crisis.

After six years in which the fiscal deficit fell from more than 9% of GDP in 2009 to below 1% of GDP in 2015, the public finances of Romania have passed a turning point, and they are expected to continue to deteriorate over coming years as a result of the fiscal easing stance of the "Fiscal Code" and additional measures introduced by the government. The government debt burden and debt affordability metrics are set to deteriorate over the medium term and we expect government debt stock to be above 45% by 2021, as compared to 38.0% at the end of 2015 and 12.7% in 2007. Such a deterioration would leave Romania more susceptible to worsening external market conditions.

SECOND DRIVER: THE PRO-CYCLICAL FISCAL POLICIES OF THE GOVERNMENT OF ROMANIA AND RAPID WAGE GROWTH ERODE COMPETITIVENESS

Although near-term growth is robust, it is largely driven by an expansionary fiscal policy. Strong demand-driven growth is also threatening external price competitiveness. Although we expect a continuation of robust real GDP growth in the medium term (real GDP was 4.8% in 2016, and is forecast to be 4.0% in 2017 and 3.5% in 2018), the presently very favourable growth momentum is not sustainable and overstates Romanian long-term growth potential. Economic momentum has shifted away from an export-driven recovery to a domestic demand-driven recovery fuelled by fiscal stimulus.

With regard to the supply side of the economy, the long-term growth potential of Romania is slightly above 3% and remains far lower than before the crisis. More importantly, it remains constrained by the lack of structural economic reforms, remaining weaknesses in the institutional framework and institutional effectiveness, economic policies that hinder stronger private investment, a comparatively low labour participation rate, and emigration. Progress on structural economic reforms as well as improvements to infrastructure have been limited and slow.

Romanian price and non-price competitiveness remain constrained by delays in public investment (including the absence of long-term and strategic planning leading to an insufficient pipeline of projects), lack of prioritisation of investment projects and a low absorption rate for EU structural funds leading to under-utilisation of available external financial resources.

As a result of strong internal demand growth, the current account deficit of Romania doubled in 2016 to 2.3%, thereby continuing to reverse the trend of narrowing external deficits that occurred between 2007 and 2014. We expect the current account deficit to widen to around 3.0% of GDP in 2017 and to 3.1% of GDP in 2018 (from 0.7% in 2014). A widening current account deficit will prevent a further significant decline in net international investment position liability and external-debt-to-GDP ratios.

WHAT COULD RESULT IN AN UPGRADE

Upward pressure upon the rating might be exerted by evidence of more balanced and, hence, sustainable real GDP growth, improvements in the institutional framework and effectiveness and a prolonged improvement in government and external debt ratios.

WHAT COULD RESULT IN A DOWNGRADE

Downward pressure upon the rating might arise from evidence of a further significant deterioration in public finances leading to an additional significant rise in the government debt ratio and sovereign borrowing requirements, a further significant decline in external competitiveness, or an increasing deterioration in its balance of payments and international investment position.

Moody`s last reviewed Romania`s rating in December 2015, when it improved the outlook on the country`s Baa3 rating to positive from stable.

RATINGS BY OTHERS

Earlier in April. Standard & Poor`s maintained Romania`s rating at BBB-/A-3, with a stable outlook, and said that the country`s deficit will widen due to the government`s loose fiscal policy.  In March, Japan Credit Rating Agency (JCRA) has affirmed the outlook on Romania`s long-term government debt in foreign currency and local currency to BBB/BBB+ stable. In January, Fitch Ratings affirmed Romania`s long-term foreign and local currency issuer default ratings (IDR) at `BBB-`, with stable outlooks.

In March, IMF mission chief in Romania Reza Baqir cautioned that without further measures to address the impact of tax cuts and wage and pension hikes, the country`s budget deficit will increase to 3.8% of GDP in 2018. He added that in IMF`s view the way forward to bring flexibility into the budget is for the government to realize that there is no room left for tax cuts.

Among the fiscal easing measures that have entered into force since the beginning of the year is a law doing away with health and social insurance contributions paid by pensioners and scrapping income tax on pensions under 2,000 lei ($469/443 euro), a bill eliminating 102 fees and charges, and a hike of the minimum wage by 16% to 1,450 lei. Romania also reduced its VAT rate from 20% to 19% as of January 1. This cut follows a reduction in the VAT rate from 24% to 20% in 2016. IMF stated that Romania`s real GDP growth is projected to reach 4.2% in 2017 before it decelerates to 3.4% in 2018. However, Romania`s 2017 budget is based on projections for 5.2% economic growth and envisages a deficit equivalent to 2.99% of GDP under the European System of Accounts (ESA) standards. Romania`s economy expanded by 4.8% year-on-year in 2016 compared to a revised growth rate of 3.9% in 2015, as per data from the country`s statistical board, INS.

18^th India-Romania Joint Economic Committee Meeting

Romanian delegation led by Mr Christian Dima, Secretary of State in the Romanian Ministry of Business Environment, Commerce and Entrepreneurship for the 18^th round of India-Romania JEC in New Delhi met with Indian minister for commerce and industry Ms Nirmala Sitharaman requested the Romanian authorities to facilitate access for the Indian investors in Romania, taking into account the presence of  IT majors in the local market, as it has a strategic position and may be used as entry gate for goods and services from India for the European market. They discussed the engagement of the two countries in important sectors such as energy, SMEs, IT, Textiles etc. The Romanian companies were invited to use the programme ‘ Made in India’ launched to change India into  a centre of production at world level. Dima pointed that it is necessary to intensify the traditional relations with India, taking into consideration as priority the increase of the volume of commercial exchanges which could reach 1 billion dollars in the next five years.

Romania and India could cooperate in the future for projects in domains of common interest, such as oil and natural gas, SMEs, transports, agriculture, renewable energy, IT, tourism, banking sector and exports, civil aviation and mining. These were outlined in the Joint Protocol signed by Commerce Secretary, Ms Tita Teaotia from the Indian side and Mr Christian Dima, Secretary of State, Ministry of Business Environment, Commerce and Entrepreneurship from the Romanian side  in New Delh iat the end of the meetings of the 18^th JEC on 07^th April 2017.