Paper: GS – III, Subject: Economy, Topic: Trade and External sector, Issue: India’s renewed approach towards FTAs.
Context:
Earlier, India approached FTAs cautiously. Now, it follows a strategic, complementary, and reciprocal approach based on experience.
Key Highlights:
India’s Trade Policy Evolution:
- India’s trade policy is undergoing a transformation, with Free Trade Agreements (FTAs) being used to boost exports, attract investment, and create jobs.
Limitations of earlier FTAs:
- Limited Impact: FTAs with ASEAN, Japan, and South Korea did not deliver expected outcomes, leading to widened trade deficits.
- Increased trade deficit: After ASEAN India Trade in Goods Agreement (AITIGA), trade deficit rose from $6 billion in 2009 to $43 billion in 2022. ASEAN markets remained less open to Indian goods.
- Structural Issues: These FTAs lacked provisions on services, investments, safeguards, and faced asymmetries in market access.
- Asymmetry in Concessions: India’s market was opened wider than partners like Thailand, Indonesia, Vietnam, leading to trade imbalances.
- Non-Tariff Barriers (NTBs): Complex SPS (Sanitary & Phytosanitary) regulations, like those from Japan, created hurdles for India’s exports.
- Narrow Scope: Early FTAs excluded services, professional mobility, and safeguards against import surges.
New FTAs:
- India-UAE CEPA: Signed in 2022, and resulted in 14% annual export growth. It also includes chapters on digital trade, e-commerce.
- India-Australia ECTA: 77% utilization by Indian exporters within a year which eventually led to negotiation of a full CCEA.
Key Characteristics:
- Comprehensive coverage: These FTAs include safeguards, wider sectoral coverage, and are aligned with India’s domestic policy goals like Make in India.
- Fixing Past Mistakes: India now includes clauses for dispute resolution, safeguards, and auto-trigger mechanisms in case of sudden import spikes. For example, India-UK talks include “rules of origin” and mutual recognition agreements (MRAs) on professional services.
- Implementation Focus: Important that clauses are effectively implemented, not just negotiated.
Positive Outcomes from New FTAs:
- Focused Negotiation: India’s FTAs now target key markets (UK, EU, US, UAE) where Indian businesses have competitive advantages.
- Broader Sectoral Coverage: FTAs now include services, digital trade, e-commerce, professional mobility, etc. For example, UK-FTA included London’s liberalization of professional-mobility rules.
- Domestic Integration: FTAs are integrated with policy tools like PLI, Make in India, and investment incentives.
- Strategic Resource Partnerships: India seeks FTAs with Chile, Peru, etc., for access to critical minerals and clean-energy tech.
Conclusion:
India has learned from its early missteps in FTAs and is now pursuing a smart, comprehensive, and strategic approach. The new trade strategy balances external engagement with internal priorities, boosting competitiveness and long-term economic interests.
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