Dash for deals: India on FTA-signing spree

India is going the whole hog on Free Trade Agreements (FTAs) once again to give a renewed push to its bilateral trade and increase exports. After signing free trade deals with the United Arab Emirates and Australia this year, it is preparing to conclude two key trade pacts with the United Kingdom and the European Union. The FTA talks with Canada and the UK are also underway.

The FTA negotiations are part of India’s broader strategy to forge balanced trade agreements with key economies and revamp existing trade pacts to improve trade and investment.

The FTA with the EU would be the one of the most significant deals for India as the bloc is its second largest trading partner after the United States. The India-EU merchandise trade has registered an all-time high value of $116.36 billion in 2021-22 with a year-on growth of 43.5%. India’s export to the EU jumped 57% in FY 2021-22 to $65 billion. India has a surplus trade with the EU.

With the UK, the trade is expected to be finalized by Diwali on October 24 this year. It is also coming at the most opportune time when India is committed to get 50% of its energy from renewable sources by 2030.

The UK is a world 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 new opportunities for firms in India.

The UAE is India’s third-largest export destination and India is hoping that the FTA signed this year will open duty free market access for export of gems and jewelry, textiles and garments and engineering goods.

Soon after taking over in 2014, Prime Minister Narendra Modi set an ambitious target of almost doubling goods and services exports to $900 billion by 2020. This could not see the light of the day. Now India aims to achieve a $500 billion export target in the financial year 2022-23, nearly $100 billion more than last year. Experts say that the FTAs could help India move faster and boost its exports. They, however, also warn that India must tread cautiously while signing the bilateral deals, which must be evenly 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 the free-movement rights for professionals came to light. The renewed negotiations, according to Commerce Minister Piyush Goyal, will open up the EU markets, not only for India’s textiles, leather, pharmaceuticals and sports goods, but also some agricultural products, handicrafts and handlooms. It is also expected to help India boost services exports to the EU, he said.

The FTAs open up new markets for exports and imports as well as help in creating jobs. But the key lies in negotiating the terms and conditions well. India did not benefit much on this count from its earlier FTAs.

India’s first bilateral FTA with Sri Lanka came into effect in March 2000. Since then India has signed as many as 13 FTAs. But four key FTAs with ASEAN, Korea, Sri Lanka and Japan – analysed by the Niti Ayog – shows that though bilateral trade increased post signing of the deals, imports from the partner countries into India increased more than India’s exports to partner countries. As imports shot up, India’s trade deficit with these countries also increased since then. Of these countries, only exports to Sri Lanka have increased much more than imports into India from Sri Lanka.

India’s trade deficit as a percentage of bilateral trade with the ASEAN worsened to over 27% from 15% before the FTA was signed. With Japan, the trade deficit nearly doubled. The Niti Ayog findings suggested that quality of trade also deteriorated under the India-ASEAN FTA.

There was a sense that India’s manufacturing sector, the key to ‘Make in India’ initiative, got impacted due to the FTAs. It was therefore, in 2019, the Centre began reviewing the existing FTAs and taking steps to make them more favorable for India.

The Economic Survey of 2022 pitched for giving a renewed push to the FTAs as such pacts could help diversify the country’s export basket and destinations, create more jobs and spur post-pandemic economic recovery.