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Satish Kannan
Satish Kannan

India's shifting focus on FTAs

India's shifting focus on FTAs

Introduction
Exports are recognized as a key driver of economic growth. Between January-October 2021, India exported goods worth US$ 325 billion representing a 44% YoY growth. Free trade agreements (FTAs) enable Indian exporters to compete on a more level playing field with local businesses from other countries due to reduced trade barriers, tariffs and duties. Through these FTAs, India plans to tap into the global demand, particularly in developed countries where growth has been strong since 2021. Mr. Piyush Goyal, Minister of Commerce & Industry, Consumer Affairs, Food & Public Distribution and Textiles, stated in January 2022 that India is now changing the way it approaches FTAs.

What is a Free Trade Agreement (FTA)?
FTA is a treaty between two or more countries that reduces or eliminates barriers to trade between the countries. It helps to strengthen the commercial ties between the member countries.

FTAs usually cover trade in goods (such as agricultural or industrial products) or services (such as banking, construction, trading). FTAs can also cover other intellectual property rights (IPRs), investment, government procurement and competition policy.

Benefits of a Free Trade Agreement:
While an FTAs focus is mainly on economic benefits and ensuring efficient and profitable trade between two countries, some of the other benefits include:

  • Better trade experience - The process of imports, exports and investments among the member countries is made much smoother after an FTA is signed. Import duties, government duties and tariffs are all reduced or eliminated, and subsidies may be introduced to facilitate trade.
  • Growth opportunity - FTAs can help Indian companies enter the local market in different countries and compete in those markets. They allow growth opportunities for Indian companies to take their business overseas.
  • Cheaper goods & services - The reduction of duties and tariffs on imported goods will give access to a more extensive selection of imported goods and services at lower prices to Indian consumers.
  • Job creation - An FTA allows India to import both finished and unfinished goods. The labour required to convert raw materials (in the form of imports) into finished goods will help in generating employment in India.

Current scenario of FTAs in India:
Mr. Goyal stated that India would no longer agree to FTAs just to be part of a group of countries; instead, India will enter into an FTA only if it is beneficial to the country. FTAs are supposed to be about two-way traffic, so India will look for reciprocal benefits and favourable market conditions from other countries. India will attempt to enter into FTAs with democratic nations that share the same values as them and are conducive to the mutual growth of both countries.

Mr. Goyal has also asked for increased input from industry associations. He wants them to be more involved by giving suggestions on issues related to FTAs, non-tariff barriers, and market access. They can identify areas where compliance costs can be reduced and make recommendations for areas where the legal structure should be streamlined.

List of major FTAs signed by India:

Name

Number of Member Countries

Names of Member Countries

Date of Signature

India Mauritius CECPA

2

Mauritius, India

1 April, 2021

Indo Malaysia CECA

2

Malaysia, India

18 February, 2011

Japan India CEPA

2

Japan, India

16 February, 2011

India ASEAN Trade in

Goods Agreement

 

11

Brunei, Cambodia, Indonesia,

Laos, Malaysia, Myanmar,

Philippines, Singapore,

Thailand, Vietnam and India

13 August, 2009

India Korea CEPA

2

South Korea, India

7 August, 2009

India-Gulf Cooperation Council Free Trade Area

7

India, Bahrain, Oman, Qatar, Kuwait, Saudi Arabia, the UAE

22 March, 2006

India Singapore CECA

2

Singapore, India

29 June, 2005

South Asia Free Trade

Agreement (SAFTA)

7

India, Pakistan, Nepal, Sri

Lanka, Bangladesh, Bhutan

and the Maldives

6 January, 2004

Indo Sri Lanka FTA

2

Sri Lanka, India

28 December, 1998

Indo-Nepal Trade Treaty

2

Nepal, India

6 December, 1991

Asia-Pacific Trade Agreement (APTA)

7

Bangladesh, China, India, South Korea, Laos, Mongolia, Sri Lanka

31 July, 1975

Recent developments and ongoing FTA negotiations:

  • The India-Korea CEPA and India ASEAN Trade in Goods Agreement are currently under review.
  • Mr. Goyal announced that FTA talks with Canada will commence in March or April 2022.
  • India is currently proactively negotiating FTAs with several countries as listed below:

Outlook:
Over the last couple of years, FTAs have assumed newfound importance to an otherwise trade conservative regime. Currently, Japan is the only G7 member with whom India has an FTA. Once the FTAs currently being negotiated are concluded, India would have FTAs with all G7 countries except the US, which will increase India's engagement with the group. The FTAs currently being negotiated are comprehensive in scope and coverage. From a negotiation perspective, India is not looking at trade and investments separately. Its choice of FTA partners is guided by a comprehensive approach that includes trade and investment potential, enabling more Indian enterprises to connect to global supply chain networks.

 

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