India has done the right thing by opting out of the trade pillar of the Indo-Pacific Economic Framework (IPEF) for now. The agreement initiated by the US President Joe Biden, in May this year is clearly tilted towards promoting the interests of the US and other advanced economies. India is far from ready to agree to the terms set out in areas such as digital trade, labour, environment and clean energy. The US has been aggressive in negotiating for free cross-border data flows and localisation of data in all such agreements, to ensure the dominance of its multinational technology companies. But it will be premature on the part of India to begin negotiations relating to this issue when the country is still in the process of framing laws pertaining to digital trade and data privacy. Entering into agreements on labour and environment standards may not be feasible for Indian exporters and can increase their cost of production. Negotiations on clean energy are also strewn with difficulties since it can limit the use of certain technologies or impose limits on emission. Also, the IPEF agreement does not involve any exchange of tariff concessions among members unlike other Free Trade Agreements and may not result in any material benefit to the country’s external trade. India has adopted the right strategy in waiting for the final contours to emerge on the trade track of the IPEF before deciding on it.
While decision on the trade pillar has been staved off for now, the remaining three pillars which include supply chains, clean economy and fair economy, are likely to present their own sets of challenges. India, which typically imposes measures such as export restrictions and bans to manage the balance between demand and supply in the domestic market, may not be ready for commitments that may curb this freedom. Clean economy may entail meeting certain environmental standards that the country may not yet be ready for. India, therefore, needs to proceed cautiously in the negotiations in these three areas and not agree to anything that it is uneasy about. The reasoning which prompted India to skip the trade pillar negotiations should also be applied in the ongoing FTA negotiations with other countries.
Given the uncertain external environment, India is clearly banking on its recently concluded FTAs and those underway for pushing up export demand. India’s FTA with the UAE has been implemented and the one with Australia is awaiting Australian Parliament clearance. It hopes to conclude its FTA negotiations with the UK this year while ones with the EU and Canada are to follow next year. While such free trade agreements can indeed help boost export growth India should be careful in not rushing into unworkable agreements that do more harm than good over the long term. India woke up to the China factor in the RCEP negotiations only at the last minute. But it managed to walk out of a bad deal while there was still time. With the IPEF, the wake-up call seems to have come earlier in the day. The Centre needs to be equally agile in the other FTA deals too.