After hurtling for many months towards finalising the India-UK FTA by Diwali, a substantial trade deal appears unlikely by this deadline. Instead of bemoaning this as a missed chance, it should be taken as an opportunity for introspecting India’s approach to FTAs, particularly with the developed countries such as the UK, European Union (EU) and Canada.

India’s FTA strategy is premised on using these agreements to secure markets for its goods and services. However, there does not appear to be adequate recognition of the reality that some of the FTA provisions could actually erode access to these markets, as well as undermine flagship initiatives of the government, particularly Atmanirbhar Bharat.

Alarm bells

No doubt, an accurate assessment of the likely impact of FTAs with the UK, EU and Canada would be possible only after the final texts of these agreements are in public domain. However, some pointers can be gleaned from the provisions in the recent FTAs of these countries. What emerges from this exercise should ring alarm bells for the government, calling for a comprehensive review of its FTA strategy.

In respect of two sectors that are likely to become drivers of economic growth in the near future — digital economy and climate-friendly products — provisions in the FTAs with the developed countries are likely to shut the doors on Atmanirbhar Bharat. Mandating almost unrestricted cross-border data flows and prohibition on localisation of servers will prevent India from leveraging its huge data advantage for creating a vibrant domestic digital economy.

Further, if government data is shared with domestic entities, then FTA commitments might require India to share it with its FTA partners on a non-discriminatory basis. This will rob India of an important policy tool for nurturing domestic digital champions. Thus, FTA provisions on digital economy are likely to make India overwhelmingly dependent on imported digital products, thereby compromising Atmanirbhar Bharat in the digital sector.

Manufacturing impact

Turning to trade and environment, the provisions in the existing FTAs of UK, EU and Canada are likely to undermine domestic manufacturing in India. Reduction in customs duties for facilitating trade in climate-friendly products is likely to threaten the commercial viability of our domestic producers in this sector.

Another risk to domestic manufacturing arises from the likely commitment to adopt high standards of environmental protection, or a move towards harmonisation of environmental standards.

After having committed to implementing high standards of environmental protection in its FTA with the UAE on a non-binding basis, India will find it extremely difficult to resist pressures from the UK and the EU to accept binding obligation on this issue. If our domestic producers are unable to adhere to high environmental standards, then they may not be able to sell even in the domestic market.

Further, provisions in the FTAs are likely to create windows for our FTA partners to impose non-tariff barriers on India’s exports. This will substantially nullify the prospects for enhancing our exports, which might otherwise be available through tariff reductions by our FTA partners.

In a nutshell, the overall impact of the provisions on environment is likely to be that India’s path towards a low carbon economy is likely to be driven not by domestic manufacturers, but by imports.

Can India afford to become overwhelmingly import dependent in the digital sector and for climate-friendly products, given the fact that the need for both these categories of products will increase manifold in most spheres of economic activities? Surely not. Let us not forget the lesson of India bringing customs duty to zero after joining the WTO’s Information Technology Agreement in 1997 resulted in a severe setback to domestic IT hardware manufacturers and contributed substantially to the country’s burgeoning trade deficit.

FTAs with the developed countries are likely to create another area of concern – access to medicines at affordable prices. It is no secret that the past FTAs of the developed countries have many provisions that can extend the period of patent protection and further bump-up the windfall profits of these giant patent-based firms. If India agrees to similar provisions in the ongoing FTA negotiations, then it would be a huge disservice to the producers of generic medicines and also completely undermine Atmanirbhar Bharat in this sector. With patented medicines dominating the market, affordable healthcare would become a pipe dream for the common man in India.

Two arguments often heard in favour of the ongoing FTA negotiations need to be addressed. First, these agreements are no longer about trade and economic issues. Instead, they are about creating partnerships with other countries keeping India’s difficult geo-political imperatives in mind. This argument is problematic. If an FTA curtails India’s economic prospects, it will definitely diminish the country’s political weight and stature at the global level. This is likely to further deepen India’s strategic problems, and not be an answer to them.

Economic interests

Second, some have argued that the provisions on environment and labour in the FTAs are about promoting societal values of the developed countries and may not have an underlying commercial interest. This argument, at best, appears naïve. Any provision in a trade agreement almost always seeks to pursue economic interests today, or opens windows for them tomorrow. Experts just need to have an eye for identifying them.

In conclusion, the writing on the wall is clear. In the quest for enhancing its exports of goods and services by a few billion dollars through FTAs with the UK, EU and Canada, India faces the risk of compromising its economic prospects, especially in emerging and buoyant sectors of the future.

The ‘give and take’ in these negotiations are likely to see the adverse impacts of the FTAs being stacked much higher than possible gains. The time for an objective introspection is now, keeping the aims of Atmanirbhar Bharat at the forefront. This should be followed by a careful recalibration of India’s FTA strategy.

The writer is an expert on international trade issues. Views expressed are personal

comment COMMENT NOW