India is fast-tracking negotiations and signings of Free Trade Agreements (FTAs) with partners such as New Zealand, Russia, Oman, the EU, and EFTA, despite evidence that earlier FTAs yielded limited export growth and widening trade deficits.
Rationale behind India’s Renewed Emphasis on FTAs:
1. Strategic Realignment in a Multipolar World:
- The global order is shifting from unipolarity to multipolarity, marked by US–China rivalry and geopolitical fragmentation.
- FTAs now serve as political and economic safety nets. For example, India–UAE CEPA and India–Australia ECTA strengthen diplomatic and security partnerships alongside trade.
2. Decline of Multilateralism:
- WTO negotiations, particularly the Doha Round, have stagnated amid rising protectionism.
- FTAs allow India to pursue WTO-plus commitments in services, digital trade and investment. For e.g., The India–EFTA TEPA, with a binding USD 100 billion FDI commitment over 15 years, reflects this shift.
3. Supply-Chain Diversification:
- FTAs help reduce over-dependence on traditional markets such as the US, EU and China.
- They operationalise the “China Plus One” strategy, positioning India as an alternative manufacturing hub and securing access to critical minerals and energy.
4. Unlocking Investment Potential:
- India has a comparative advantage in IT, healthcare, education and fintech, which earlier FTAs under-leveraged.
- New-generation FTAs increasingly prioritise services mobility, fintech and capital flows. E.g., UAE-India CEPA.
5. Supporting Domestic Manufacturing: FTAs are now aligned with Make in India and PLI schemes, aiming to integrate India into global value chains and attract technology-intensive FDI.
Concerns with India’s Expanding FTA Network:
1. Asymmetric Gains:
- Imports from FTA partners have often grown faster than exports.
- For example, ASEAN imports rose 234.4%, while Indian exports grew only 130.4% between FY 2009–23.
2. Non-Tariff Barriers (NTBs):
- Developed partners impose stringent IPR, environmental and SPS standards, diluting tariff benefits.
- India’s FTA utilisation rate is only 25%, compared to 70–80% in developed economies.
- India-EU FTA talks remain stalled over data localisation and IPR issues.
3. Stress on Domestic Sectors:
- MSMEs, farmers and labour-intensive sectors face pressure from cheaper imports.
- Inverted duty structures incentivise importing finished goods over domestic manufacturing. For e.g., Rubber farmers affected under the ASEAN FTA.
4. Risk of Third-Country Routing: Weak Rules of Origin allow non-FTA countries to route goods via partner nations, undermining domestic industry.
India’s FTA Strategy Going Forward:
- Strengthen Domestic Competitiveness: Invest in R&D, infrastructure, skills and MSME upgrading.
- Focus on WTO-Plus Areas: Prioritise services, digital trade, green technologies and investment facilitation.
- Build Strong Safeguards: Robust Rules of Origin, safeguard duties and anti-dumping mechanisms.
- Effective Dispute Resolution: Include time-bound, independent dispute settlement mechanisms.
- Periodic Review of FTAs: Institutionalise impact assessments and stakeholder consultations.
Conclusion:
India’s renewed FTA push reflects a shift from trade efficiency to strategic necessity in a fragmented global order. Going forward, India’s challenge lies in ensuring that strategic FTAs also deliver sustainable economic gains without undermining domestic capacities.
‘+1’ Value Addition:
- A NITI Aayog assessment shows India’s FTAs with ASEAN, Japan and South Korea increased imports faster than exports.
- India’s FTA utilisation rate is only 25%, compared to 70–80% in developed economies.
- The India–EFTA TEPA, 2024 includes a binding USD 100 billion FDI commitment over 15 years.
- As per the WEF, 75% of global trade now occurs within geopolitically aligned blocs.
- FTAs complement PLI schemes by integrating India into global value chains.
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