Opinion

FTAs need to be reworked

Rakesh Nangia | Updated on October 28, 2021

Most of the trade pacts haven’t been too beneficial to India

The 1990s saw India opening its doors to the world, leading to competition amongst various global companies to enter the country. This race has not slowed, and since then the world has always seen India as ‘multi bagger stock’ to increase its wealth.

India today is a fairly open economy, and as far as trade is concerned it has done well particularly in the area of FTAs (free trade agreements).

An FTA, in principle, leads to both the trade partners eventually agreeing to reduce or eliminate the tariff and trade barriers for mutual benefit. In Asia, India has the maximum number of FTAs either in operation or under negotiation.

India-ASEAN Trade in Goods, South Asia Free Trade Agreement (SAFTA), Indo Malaysia CECA (IMCECA), India Singapore CECA (ISCECA), and Japan India CEPA (JICECA) are some of the major agreements that have had a significant impact on India’s international trade. In September 2021, India and the UAE started negotiations for a Comprehensive Economic Partnership Agreement (CEPA). The speed at which FTAs are being entered into reiterates their economic importance to India.

Though India’s approach towards expanding existing FTAs is on the right track, the country is currently faced with the challenge of rebalancing its trade strategies because of some significant changes occurring in the global economic environment.

Further, India is looking to fast-track its FTA negotiations with countries such as the US, the UK, Australia, the EU, Canada and the UAE.

Not too encouraging

The rebalancing is probably because India’s experience with its major FTAs, with the exception of SAFTA, has not been very encouraging. While India’s exports have got a boost from its FTA with SAFTA, the pacts with Korea and the ASEAN have been more beneficial to those economies. As for the treaty with Japan, bilateral trade has either declined or stagnated after the first year of implementation; also, there has been a substantial rise in trade deficit with that country.

Strategically, FTAs have helped India compete at a global level and enhance its growth. However, since some market sizes are smaller, the impact of various FTAs shows that India has underperformed, with imports always always being more than exports.

In certain cases, domestic manufacturers were the worst affected as FTA made imports cheaper. Therefore, the government has to focus on two areas when negotiating on FTAs — enhancing trade and protecting the domestic sector.

While India not joining the Regional Comprehensive Economic Partnership (RCEP) has helped protect its manufacturing — especially pharmaceutical — and services sectors, the threat has not been totally nullified as the FTAs with the US, EU, UK, Canada and the UAE are still on the table.

Complex rules of origin, lack of information on FTAs, higher compliance costs and administrative delays dissuade exporters from using preferential routes.

Therefore, the focus should also be on minimising the compliance costs involved in getting benefits under FTAs. India needs to eliminate or reduce the hurdles exporters face and ensure that FTAs focus on ease of doing business and expanding trade opportunities for exporters.

As the results of existing FTAs are not that noteworthy, India should be careful while negotiating the clauses. Despite having strong pharma, IT, ITeS and education sectors, the agriculture and industrial sectors, especially MSMEs (micro, small and medium enterprises), are still fragile when compared to those in countries with which India is negotiating FTAs.

Simply for the sake of gaining an advantage in the services sector and access to overseas markets in services, which are anyway not completely accessible due to various clauses, India should not end up losing on the primary and secondary sectors, as this will not only affect the livelihood of millions but also the economy as a whole. It would be a good idea to link the production linked incentive (PLI) scheme with ‘AtmaNirbhar Bharat’ initiative and guard against the ills of FTAs.

The aim is to make Indian manufacturers globally competitive, attract investment in the areas of core competency and cutting-edge technology, ensure efficiencies, create economies of scale, enhance exports and make India an integral part of the global supply chain.

India’s post-Covid FTA strategy can grab world attention as the country is being projected as a bright spot in the global economy.

The writer is Director, Indo-Canadian Business Chamber

Published on October 28, 2021

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