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| Introduction: Explain FTAs in India’s context. Body: Write positive experiences of India w.r.t FTAs. Write challenges faced by India due to FTAs. Conclusion: Explaining the need to relook India’s FTAs provide a way forward. |
In the 1990s India opened its economy to the world. Since then, India has viewed FTAs as an important tool to enhance its trade and investment, and signed a number of trade agreements with various countries or groups.
Free Trade Agreements (FTAs) are arrangements between two or more countries or trading blocs that primarily agree to reduce or eliminate tariff and non-tariff barriers of trade between them.
India-ASEAN Trade in Goods, South Asia Free Trade Agreement (SAFTA), India south Korea CEPA and Japan India CEPA are some of the major agreements that have had a significant impact on India’s international trade.
Positive experiences with FTAs.
- Increased Trade: Trade between India and its major FTA partners, mentioned above, shows a significant increase in trade since the agreements have become operational. For example, India-ASEAN – US$ 43 billion in 2009-10 to US$ 97 billion in 2018-19 and India-SAFTA member countries, US$ 6.8 billion in 2005-06 to US$ 28.5 billion in 2018-19.
- Overall increase in Exports: Exports from India to the FTA partner countries have increased since the FTAs were signed. For example, India-ASEAN – US$ 23 billion in 2009-10 to US$ 36 billion in 2018-19.
- Gains from SAFTA: India’s trade with SAFTA has grown faster than its total trade with the world. the Indian exports to SAFTA countries have increased faster than its imports from them leading to a significant rise in trade surplus with these economies from about US$ 4 billion to US$ 21 billion.
Even though FTAs brought India, above mentioned benefits, India’s experience with its major FTAs, with the exception of SAFTA, has not been very encouraging.
- Increased Trade Deficit: There is a significant rise in trade deficit with Japan, Korea and ASEAN. For example, the trade deficit with ASEAN from 2010-11 until 2018-19 increased more than four times from $5 billion to $21.8 billion.
- Increase in Imports: There has been rise India’s imports from FTA partner countries. For example, India’s imports from ASEAN have increased at a significantly higher rate than Indian exports to ASEAN and also the imports from ASEAN grew much faster than India’s imports from the world.
- No meaningful rise in trade growth: For example, India-Korea CEPA, the bilateral trade between the two countries has increased from about US$ 12 billion to US$ 21.5 billion. The growth pace is more or less similar to that of India’s trade with the world.
- Impact on domestic manufacturers: Domestic manufacturers were the worst affected as FTA made imports cheaper. Asymmetrical and unfavorable tariff commitment along with the circumvention of rules of origin clause has affected the domestic manufacturers badly.
- Lack of benefits to exporters: Complex rules of origin, lack of information on FTAs, higher compliance costs and administrative delays dissuade exporters from using preferential routes. which affects India’s ability to take benefits of FTAs.
India is looking to fast-track its FTA negotiations with countries such as the UAE, US, the UK, Australia, the EU and Canada. In these negotiations India should focus on addressing the issues faced in previous FTAs to make these favorable for India. India shall also review existing FTAs to ensure a more favorable agreement.
