India has benefited overall from free-trade agrrements

India has benefited overall from the free-trade agreements (FTAs) signed with its trade partners from the perspective of trade balance, according to the Economic Survey. The only countries where the percentage increase in import was higher than that of exports were Japan, South Korea and Sri Lanka

However, some trade experts point out that the benefits mostly accrue with respect to trade partners who are small in size and suffer from supply constraints, while India’s trade deficit is increasing with most major partners.

“From the perspective of trade balance, India has clearly gained in terms of 0.7 per cent increase in trade surplus per year for manufactured products and of 2.3 per cent increase in trade surplus per year for total merchandise,” said the survey.

At least seven of the 14 trade agreements with partners including Bhutan, Singapore, Chile, Nepal, ASEAN (Association of Southeast Asian Nations), MERCOSUR (a South American trade bloc) and Afghanistan have benefited exports of manufactured products from India, it said. Four of the agreements — with Sri Lanka, Thailand, South Asia and BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) — have had no effect on exports. Only in the case of Japan and South Korea have exports of manufactured goods suffered.

RCEP exit

The issue of whether India has gained from FTAs has assumed greater significance in the context of the country’s decision to exit the Regional Comprehensive Economic Partnership (RCEP) pact with 15 other nations including China and those in ASEAN.

“Interestingly, most of the countries where India has gained are small players and are not much of a match for India, as they have supply constraints,” pointed out Biswajit Dhar, Professor, JNU.

Moreover, many of the agreements, such as the ones with Bhutan, Nepal, Chile, BIMSTEC and Afghanistan, are merely trade arrangements or preferential trade agreements (PTAs) with limited impact, and not full-fledged FTAs.

The big fishes

“What matters are the trade agreements with large players, and the fact remains that India’s trade deficit with most big trading partners is increasing,” Dhar said.

While the Economic Survey itself points out that India’s trade deficit worsened with Japan, South Korea and Sri Lanka after the bilateral trade pacts were signed, figures released by the Commerce and Industry Ministry reveal that India’s trade deficit with the 10-member ASEAN increased to $22 billion in 2018-19 compared with a deficit of $13 bilion a year ago.

As per figures given in the survey, the overall impact on India’s exports to the partners with which the agreements have been signed, is 13.4 per cent for manufactured products and 10.9 per cent for total merchandise. The overall impact on imports was found to be lower at 12.7 per cent for manufactured products and 8.6 per cent for total merchandise.

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