Bullish on FTAs, India chases an export target of $2 trillion by 2030
BY AJIT KUMAR JHA
India has signed 13 free trade agreements (FTAs) and six preferential pacts with its trading partners since 2000. However, the journey has not been very smooth. India has been overly cautious in international trade negotiations, with some hiccups in the past. After a decade of eschewing free trade deals, India has embarked on an FTA-signing spree. This is transforming the country into one of the most FTA-engaged countries in the world. The re-invigorated FTA push began with an agreement with Mauritius on 1 April 2021, followed by 88 days of fast-track negotiations with the United Arab Emirates (UAE), and Australia. Trade negotiations with the United Kingdom (UK), Canada, the European Union (EU), and Israel are also on the cards. With the US, India pursued a mini trade deal which was discarded. The bilateral trade with the US continues to surge without any plans for an FTA.
India’s engagement with FTAs has come full circle. From 2000 to 2012, India negotiated several FTAs, including with South Asian countries (like Sri Lanka, and Nepal), Singapore, Malaysia, Korea, Japan, and the ASEAN (Association of South-East Asian Nations). The FTAs were greatly encouraged by the Look East Policy (LEP) followed by the NDA 1 regime under PM Atal Behari Vajpayee and the two UPA regimes led by Manmohan Singh. The FTAs expanded India’s trade and investment links with South-East-Asia, East Asia, and South Asian neighbours.
Some FTAs spurred concerns among Indian industry and policy authorities when imports accelerated substantially more than exports. The trend of imports being higher than exports continues to this day. The protectionist fears have made India heavily sceptical of FTA over the last decade, during which negotiations with the EU, the GCC, and Canada were on hold.
The best example of protective interests blocking India’s engagement with FTAs was the withdrawal from the Regional Comprehensive Economic Partnership (RCEP) – the biggest regional trading block in the world comprising the ASEAN economies, Australia, Japan, Korea, China, New Zealand, and India – in November 2019.
India’s vigorous re-engagement with Free Trade Agreements less than two years after withdrawing from the RCEP – a remarkable turnaround induced by economic and political imperatives – marks a full circle in the country’s FTA journey.
Safeguarding supply chains and diversifying sources have been major factors behind India’s FTA drive. As in many other countries, COVID-19-induced supply chain disruptions alerted India about diversifying its sources of essential products (bulk drugs, edible oils, chemicals, electronic chips). This glaring imperative led to sourcing product supplies and natural resources by connecting to multiple large economies through formal trade agreements.
$2 trillion Dream by 2030 Bullish on FTAs, India chases an ambitious goods and services export target of $2 trillion by 2030. For India, FTAs are
essential for enhancing exports. Prime Minister Modi took to Twitter to congratulate everyone:
“India set an ambitious target of USD 400 billion of goods exports & achieves this target for the first time. I congratulate our farmers, weavers, MSMEs, manufacturers, and exporters for this success.” Achieving the target annually, however, would require preferential access to Indian exports in markets through FTAs. Balancing trade deficit is the ultimate test for FTAs. Moreover, COVID-19 led to major geo-political upheavals,
particularly around the US-China and US-led NATO and Russia conflicts, causing the global order to become further multipolar and organized among country alliances. While India is already an active member in the Quadrilateral Security Dialogue (Quad), a strategic dialogue between the US, India, Australia, and Japan and the Indo-Pacific regional architecture, strategic imperatives have also brought it closer to the G7 on common concerns, such as the resilience of supply chains, clean energy, and healthcare. India recognizes and accepts the inevitability of complementing political cooperation with strategic partners with economic engagement – an understanding which has heavily influenced the FTA drive. Subsequently, the country is negotiating its latest FTAs with its major strategic partners, in line with Commerce Minister Piyush Goyal’s assertion that India considers FTAs with ‘like-minded nations with values of democracy, transparency, and mutual growth’. FTAs with G7 members like the UK will enable India to diversify sourcing, increase exports and align to new standards and regulations in global finance, clean energy, digital trade, and supply chains. These new agreements will secure ‘win-win’ outcomes for India, both politically and economically, of which the upcoming FTA between India and the UK is a prime example.
The FTA negotiations are not always a bed of roses. The slope is often slippery, the journey filled with risks. India’s FTA experience (withdrawal from the Regional Comprehensive Economic Partnership-RCEP) shows that the roadblocks can turn into treacherous hurdles difficult to overcome. India has not been able to sign the FTA with the US, its biggest trade partner despite a surge in Indo-US bilateral trade and investment. Although India has a trade surplus with the US, a glaring trade deficit with other trading partners, especially China, has made FTAs unfavourable to India. This has been the main rallying point for protectionist interests inside the country. As long as the goals are ambitious and laudable and the resolve steadfast, what seems impossible can be achieved with time and sincere effort.
FAQs on FREE TRADE AGREEMENTs (FTAs) and World Trade Organisation (WTO)
Q: What is a Free Trade Agreement (FTA)?
A: FTAs are treaties between two or more countries designed to reduce or eliminate some barriers to trade and investment, thereby facilitating trade and commercial ties between participating countries.
Q: What is a Regional Trade Bloc (RTB)?
A: RTBs are groups of countries that have formed a regional economic alliance to promote trade and economic cooperation within the region by reducing trade barriers and promoting economic integration among member countries. RTB is similar to FTA.
Q: Is there a conflict between FTAs and WTO?
A: Yes, FTAs or Regional Trade Blocs (RTBs) conflict with WTO. The WTO leads the multilateral trading system. The WTO rules and administrative guidelines regulate international trade. However, powerful trade blocs or RTBs like the European Union (EU), APEC and the proposed TPP are making conflicting trade laws vis-a-vis the WTO.
Q: How are RTBs different from WTO?
A: RTBs stand for regionalism. The WTO stands for multilateralism.
Q: How many countries are members of the WTO?
A: Created on January 1, 1995, the World Trade Organisation included 125 member countries. Today, there are 164 member countries.
Q: How many FTAs has India signed until now?
A: India has signed 13 Free Trade Agreements (FTAs) and six preferential pacts with its trading partners for greater market access for domestic goods and promoting exports.
- India signed its first FTA with Sri Lanka
in March 2000. - Between 2000 and 2011, India signed
10 FTAs with ASEAN, Singapore, Japan,
South Korea, Thailand, Malaysia and
its South Asian neighbours. - India has since 2021 signed three FTAs
with Mauritius, the UAE and Australia. - India is actively negotiating FTAs with
key trading partners: the United
Kingdom, European Union, Israel and
Canada.
Q: When and why did India withdraw from RCEP, one of the largest Regional Trade Blocs?
A: India withdrew from the Regional Comprehensive Economic Partnership (RCEP) — an agreement comprising the ASEAN economies, Australia, Japan, South Korea, China, New Zealand and India — in November 2019. India was a member of the RCEP drafting committee from its inception in 2011, but in November 2019 it decided to opt out, claiming that some of its main concerns were not being addressed. Some of the
concerns related to cheap Chinese imports flooding Indian markets, thereby hurting smaller domestic entrepreneurs.
Q: Which countries are the top 5 trading partners of India?
A: 1. USA
2.China
3.UAE
4.Saudi Arabia
5.Singapore
(Writer is Editor-in-Chief of Pravasi Indians, the writer has spent 20 years abroad in the US, UK and Middle East; and has been an Editor with India Today, The Times of India, Indian Express, Qatar Tribune and Oman Tribune.)
