Race for deals: India seeks free trade deal signatures
India is once again banking on Free Trade Agreements (FTAs) to boost its bilateral trade and increase its exports. After signing free trade agreements with the United Arab Emirates and Australia this year, it is set to conclude two key trade agreements with the United Kingdom and the European Union. FTA talks with Canada and the UK are also underway.
The FTA negotiations are part of India’s broader strategy to forge balanced trade deals with key economies and revamp existing trade pacts to improve trade and investment.
The FTA with the EU would be one of the most important deals for India, as the bloc is its second largest trading partner after the United States. Merchandise trade between India and the EU recorded a record value of $116.36 billion in 2021-2022, with an annual growth of 43.5%. India’s exports to the EU jumped 57% in FY 2021-22 to $65 billion. India has a trade surplus with the EU.
With the UK, the trade is expected to be finalized by Diwali on October 24 this year. It also comes at the most opportune time as India has pledged to get 50% of its energy from renewable sources by 2030.
The UK is a global leader in the renewable energy sector and could play a key role in India’s transition to clean energy. Reducing tariffs on green exports such as solar, onshore and offshore wind could open up new opportunities for Indian companies.
The UAE is India’s third largest export destination and India hopes the FTA signed this year will provide duty-free market access for the export of gemstones and jewellery, textiles and clothing and engineering goods.
Shortly after taking office in 2014, Prime Minister Narendra Modi set an ambitious goal of nearly doubling exports of goods and services to $900 billion by 2020. This could not see the day. Today, India is aiming to hit an export target of $500 billion in the fiscal year 2022-23, nearly $100 billion more than last year. Experts say FTAs could help India move faster and boost exports. However, they also warn that India should exercise caution when signing the bilateral agreements, which must be balanced.
Six years ago, India had to pull out of FTA negotiations with the EU after disagreements over tariff rules covering the auto sector and free movement rights for professionals came to light. The renewed negotiations, according to Trade Minister Piyush Goyal, will open EU markets, not only for Indian textiles, leather, pharmaceuticals and sporting goods, but also for certain agricultural products, handicrafts and handicrafts. weave. It should also help India boost services exports to the EU, he said.
FTAs open up new markets for exports and imports and contribute to job creation. But the key lies in the proper negotiation of terms and conditions. India has not benefited much in this regard from its previous free trade agreements.
The first bilateral FTA between India and Sri Lanka entered into force in March 2000. Since then, India has signed no less than 13 FTAs. But four key FTAs with ASEAN, Korea, Sri Lanka and Japan – analyzed by Niti Ayog – show that although bilateral trade increased after the agreements were signed, imports from partner countries to India increased more than India’s exports to partner countries. As imports increased, India’s trade deficit with these countries has also increased since then. Among these countries, only exports to Sri Lanka increased much more than imports to India from Sri Lanka.
India’s trade deficit as a percentage of bilateral trade with ASEAN has widened to over 27% from 15% before the signing of the FTA. With Japan, the trade deficit almost doubled. Niti Ayog’s findings suggest that the quality of trade has also deteriorated under the India-ASEAN FTA.
There was a feeling that India’s manufacturing sector, key to the ‘Make in India’ initiative, had been affected by the FTAs. So it was in 2019 that the Center started reviewing existing FTAs and taking steps to make them more India-friendly.
The 2022 economic survey advocated giving new impetus to FTAs, as such pacts could help diversify the country’s export basket and destinations, create more jobs and boost post-pandemic economic recovery.