India and the European Union should aim to sign a free trade pact by the end of this year to keep investment flowing and counter the global downturn, Britain’s Business Secretary Peter Mandelson said.

“The EU and India should call the deal what it would be—a confidence-building economic stimulus package—and sign it before the end of this year,” former EU trade commissioner Mandelson told a business conference.

The two sides started negotiations for a free trade agreement in 2007, but as the global financial crisis roiled markets and triggered recessions talks have not progressed far.

The World Bank estimates global trade growth to fall in 2009 for the first time since 1982, and investment flows from developed nations to emerging economies could be half of the $1 trillion of 2007.

“India is less dependent on export demand than China or other parts of Asia, but the pressures on developed world investment can and is having the same impact on growth in India, China and the other emerging economies,” Mandelson said.

He outlined the need for coordinated fiscal policies, and warned against a rise in protectionism in a period of turmoil.

Since October, Indian authorities have slashed interest rates, cut duties and announced extra spending to lift economic growth.

India’s economy is expected to grow at about seven percent in the year to March 2009, slower than nine percent of last year, as high borrowing costs and the global downturn hit demand. (Reuters)