How India is Embracing Free Trade Agreements (FTAs)

Introduction

Free trade agreements (FTAs) are deals that make it easier for countries to trade with each other. They usually involve lowering or removing taxes and other barriers to goods and services that cross borders. India, as a fast-growing and influential country in the world, has been signing more FTAs with different countries and regions to boost its trade and investment, reach new markets, and join the global supply chains.

Why India Wants FTAs

India has several reasons to pursue FTAs with other countries. Some of them are:

• To build economic and strategic partnerships with countries that share similar values and interests, such as democracy, rule of law, and human rights.
• To gain more access and better treatment for Indian products and services, especially in areas where India has an edge, such as textiles, leather, gems and jewelry, pharmaceuticals, engineering, and IT services.
• To attract more foreign investment and technology and create a friendly environment for Indian businesses to grow and expand abroad.
• To support regional integration and stability and contribute to the global trading system.

India’s FTA strategy is also in line with its foreign policy goals, such as the Act East Policy, the Look West Policy, the Neighbourhood First Policy, and the Indo-Pacific Vision.

What FTAs India Has

India currently has 13 FTAs in force with various countries and regions, covering about 40% of its total trade. These are:

• India-Singapore Comprehensive Economic Cooperation Agreement (CECA), effective from August 2005
• India-Korea Comprehensive Economic Partnership Agreement (CEPA), effective from January 2010
• India-Sri Lanka Free Trade Agreement (ISFTA), effective from March 2000
• India-United Arab Emirates Comprehensive Economic Partnership Agreement (CEPA), effective from May 2022
• India-Association of Southeast Asian Nations (ASEAN) FTA, effective from January 2010 for goods and from July 2015 for services and investment
• India-Malaysia CECA, effective from July 2011
• India-Japan CEPA, effective from August 2011
• India-Afghanistan Preferential Trade Agreement (PTA), effective from May 2003
• India-MERCOSUR (a regional bloc comprising Brazil, Argentina, Uruguay, and Paraguay) PTA, effective from June 2009
• India-Chile PTA, effective from August 2007, and expanded in May 2017
• India-South Asian Free Trade Area (SAFTA), effective from January 2006
• India-Bhutan Agreement on Trade, Commerce, and Transit, effective from July 2006
• India-Nepal Treaty of Trade, effective from October 2009

India is also in talks with several other countries and regions to sign new FTAs, such as:

• India-European Union (EU) Broad-based Trade and Investment Agreement (BTIA), under negotiation since June 2007
• India-Australia CECA, under negotiation since May 2011
• India-Canada CEPA, under negotiation since November 2010
• India-New Zealand FTA, under negotiation since April 2010
• India-Gulf Cooperation Council (GCC) FTA, under negotiation since August 2004
• India-Israel FTA, under negotiation since January 2010
• India-Eurasian Economic Union (EAEU) FTA, under negotiation since June 2015
• India-United Kingdom (UK) Enhanced Trade Partnership (ETP), under negotiation since February 2021
• India-United States (US) Trade Policy Forum (TPF), under negotiation since October 2005

India was also part of the Regional Comprehensive Economic Partnership (RCEP), a huge FTA involving 16 countries, namely the 10 ASEAN members and China, Japan, Korea, Australia, New Zealand, and India. However, India decided to quit the RCEP talks in November 2019 because it was worried about its trade gap with China, the impact on its farmers and dairy sector, and the lack of clear promises on market access and non-tariff barriers.

What do FTAs mean for India?

India’s FTAs have brought many benefits to its economy, such as:

• More trade and more markets According to a study by the Ministry of Commerce and Industry, India’s trade with its FTA partners increased by 50% between 2010 and 2019, while its share of global trade increased by 18%. India’s exports to its FTA partners also increased by 31%, while its imports increased by 62%. India’s exports to its FTA partners are more varied than its exports to the rest of the world, with more shares of manufactured goods, chemicals, and engineering products.
• More competitiveness and efficiency. India’s FTAs have exposed its domestic industries to more competition and innovation and have helped them access cheaper and better-quality inputs, intermediate goods, and technology from abroad. This has improved their productivity, quality, and cost-effectiveness, and it has helped them join the global supply chains.
• More investment and technology. India’s FTAs have made it more attractive and predictable for foreign investors and have encouraged the inflow of investment and technology in sectors such as automobiles, electronics, pharmaceuticals, and renewable energy. According to the Department for Promotion of Industry and Internal Trade, investment inflows from India’s FTA partners increased by 77% between 2010 and 2019, while their share in India’s total investment inflows increased from 16% to 22%.
• More regional cooperation and strategic partnerships India’s FTAs have strengthened its economic and political ties with its FTA partners and have supported regional peace and stability. India’s FTAs have also backed its strategic interests and objectives, such as countering China’s influence, promoting the Indo-Pacific vision, and advancing the global trading system.

But India’s FTAs also have some challenges and risks for its economy, such as:

• Bigger trade deficit and revenue loss. India’s trade deficit with its FTA partners increased by 122% between 2010 and 2019, while its trade surplus with the rest of the world increased by 19%. India’s trade deficit with its FTA partners made up 37% of its total trade deficit in 2019, up from 27% in 2010. India’s FTAs have also resulted in revenue loss due to lower or zero taxes on imports, which has affected its fiscal space and domestic resource mobilization.
• Negative impact on sensitive sectors and vulnerable groups. India’s FTAs have exposed some of its sensitive sectors and vulnerable groups to unfair competition and dumping from abroad, which has affected their livelihoods and profitability. Some of the sectors that have been negatively affected by FTAs are agriculture, dairy, textiles, steel, and electronics. Some of the vulnerable groups that have been affected by FTAs are farmers, small and medium enterprises, and informal workers.
• Non-tariff barriers and implementation issues. India’s FTAs have not been able to address the non-tariff barriers and implementation issues that hamper its trade and investment with its FTA partners. Some of the non-tariff barriers that India faces are health and safety measures, technical barriers to trade, standards and certification, intellectual property rights, and rules of origin. Some of the implementation issues that India faces are a lack of awareness, inadequate infrastructure, cumbersome procedures, and dispute resolution mechanisms.

How India Can Make FTAs Work Better

India’s FTAs are an important tool for its economic growth and development and its integration with the global economy. However, India needs to adopt a more active and practical approach to its FTAs and address the challenges and risks that they involve. Some of the steps that India can take to improve its FTA performance and outcomes are:

• Conduct a thorough review and assessment of its existing and proposed FTAs, and identify the gaps and opportunities for improvement and expansion.
• Adopt a balanced and flexible approach to its FTA negotiations and ensure that its interests and concerns are properly reflected and protected in the FTA texts and annexes.
• Enhance its consultation and coordination with the stakeholders, such as the state governments, industry associations, civil society organizations, and academia, and include their inputs and feedback in the FTA formulation and implementation.
• Strengthen its capacity and capability to implement and monitor its FTAs, and ensure compliance and enforcement of the FTA obligations and commitments by both parties.
• Address the non-tariff barriers and implementation issues that hinder its trade and investment with its FTA partners, and seek effective and timely resolution of any disputes or grievances that arise.
• Provide adequate support and assistance to the sectors and groups that are adversely affected by FTAs, and help them cope with the adjustment costs and challenges.
• Promote greater awareness and outreach among the potential beneficiaries and users of FTAs and facilitate their access to and use of FTA preferences and opportunities.

India’s FTAs are a vital part of its economic and foreign policy and have the potential to transform its economy and society. India should use its FTAs to its advantage and make them work for its development and prosperity. references

Here are some video references

• Introduction to Free Trade Agreements (FTAs): This video explains the benefits and opportunities that US FTAs provide for exporters and importers.
• India’s Free Trade Agreements: This video discusses the pros and cons of India’s FTAs and the challenges and opportunities for India in the global trade scenario.