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India is quickly increasing its Free Commerce Agreements (FTAs) to open new markets and increase exports. With over 350 FTAs in pressure globally, these agreements assist scale back commerce boundaries like tariffs, making commerce extra environment friendly.
Over the previous 5 years, India has signed FTAs with Mauritius, the UAE, Australia, and EFTA nations (Switzerland, Norway, Iceland, and Liechtenstein), whereas advancing negotiations with the UK and Oman.
Nonetheless, whereas FTAs provide alternatives, their effectiveness is determined by strategic execution, addressing commerce imbalances, and navigating new regulatory challenges imposed by developed economies.
General, India now has 14 commerce agreements protecting 25 nations, together with ASEAN, Japan, and South Korea. It’s also negotiating offers with over 50 extra nations and has six smaller commerce agreements with 26 nations.
India has additionally joined the US-led Indo-Pacific Financial Framework (IPEF), which focuses on regulatory cooperation however doesn’t embrace tariff cuts like conventional FTAs.
Quickly, India may have FTAs with all main economies besides China. Nonetheless, underneath the Asia-Pacific Commerce Settlement, India and China do have restricted tariff concessions on about 25 p.c of tariff strains.
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Adjustments in India’s FTA Technique
India’s present FTA technique is completely different from the previous in two key methods:
Shift in focus: Earlier, India prioritised FTAs with japanese nations like ASEAN, Japan, South Korea, and Australia. Now, after finishing key agreements within the east, India is specializing in FTAs with Western nations such because the UK, EU, USA, Switzerland, Norway, and Canada (although talks with Canada are on maintain).
Inclusion of latest areas: In contrast to earlier FTAs that primarily targeted on commerce in items and companies, agreements with developed nations now embrace non-trade areas like sustainable growth, digital commerce, mental property rights (IPR), labour, gender, MSMEs, authorities procurement, and competitors.
How FTAs have carried out?
From FY2019 to FY2024, India’s exports to its 21 FTA companions grew by 14.48 p.c, from $107.2 billion to $122.72 billion, whereas imports rose by 37.97 p.c, from $136.2 billion to $187.92 billion. These companions embrace ASEAN, South Korea, Japan, UAE, Australia, Mauritius, and 6 SAFTA nations.
A more in-depth have a look at India’s FTAs with ASEAN, South Korea, and Japan exhibits two key developments: First, India’s trade deficit with these companions has grown a lot sooner than its general world commerce deficit. From the pre-FTA interval (2007-09) to current years (2020-22), commerce deficits surged by 302.9 p.c with ASEAN, 164.1 p.c with South Korea, and 138.2 p.c with Japan, in comparison with an 81.2 p.c enhance in India’s world commerce deficit. This development continued in 2023.
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Second, India’s exports to those FTA companions have grown at a slower fee than its imports. With ASEAN, exports grew by 123.9 p.c whereas imports rose by 175.7 p.c.
With Japan, exports elevated by 56.4 p.c, whereas imports jumped by 98.5 p.c. With South Korea, exports grew by 89.1 p.c, whereas imports rose by 127.3 p.c.
A key purpose for this commerce imbalance is India’s excessive MFN tariffs (common import duties) in comparison with decrease tariffs in accomplice nations. Whereas FTAs scale back or take away tariffs, India’s exports stay much less aggressive resulting from these excessive baseline tariffs.
Negotiating New topics
New commerce agreements usually embrace guidelines on the surroundings, labour, mental property, digital commerce, and gender, pushed by developed nations. Nonetheless, these points aren’t immediately associated to commerce and wish cautious negotations.
For instance, adopting US or EU environmental requirements might elevate energy and meals prices, affecting financial actions. Increased minimal wages might enhance product costs and damage exports. Stricter medication rules past WTO guidelines might make medicines costly. Permitting UK or EU corporations into authorities procurement might hurt small Indian companies, whereas Indian corporations face powerful entry to EU and UK markets.
Tighter sustainability requirements in an FTA with the UK might forestall Indian attire from getting tariff concessions. These are new commerce boundaries imposed by developed nations. India ought to set its personal guidelines for labor, gender, surroundings, and digital commerce earlier than accepting them in FTAs.
Delay in completion of India-EU BTIA
Because the negotiations haltingly proceed since 2007, each side face the problem of balancing commerce liberalization with home financial priorities. Whereas India
seeks larger entry for its companies sector, short-term work visas, and knowledge safety recognition, the EU is urgent for deep tariff reductions, sturdy environmental and labor commitments, and larger funding protections.
With main unresolved points throughout companies, funding, authorities procurement, IPRs, sustainability, and inexperienced taxes, the India-EU FTA stays a fancy and high-stakes negotiation. The end result will decide whether or not this long-awaited commerce pact will open new financial alternatives or stay stalled by regulatory and market entry disputes.
A political push and pragmatic strategy will likely be essential to bridge these gaps and be sure that the India-EU BTIA turns into a cornerstone of their strategic financial partnership.
Lastly, whereas FTAs play a key position in India’s commerce coverage, they account for less than 15-17 p.c of worldwide commerce, with most commerce occurring underneath commonplace Most Favored Nation (MFN) tariffs. Specialists usually overestimate their affect, as many exports between FTA companions already face zero duties. As an example, solely six p.c of India’s exports to Singapore profit from preferential FTA phrases, whereas 70 p.c of India’s exports to ASEAN enter duty-free underneath MFN guidelines. FTAs alone can’t drive export development—India should complement them with broader financial reforms, aggressive manufacturing, and a robust world commerce technique.
The author is founder, International Commerce Analysis Initiative.
