The Present and Future of India’s Free Trade Agreement

A free trade agreement (FTA) is a pact between governments to lower or eliminate trade barriers. Tariff barriers, such as taxes, and non-tariff barriers, such as regulatory regulations, are examples of trade barriers.

Tariff barriers, such as taxes, and non-tariff barriers, such as regulatory regulations, are examples of trade barriers.

A free trade agreement, or FTA, is an agreement between two or more nations in which the parties agree on certain obligations concerning trade in goods and services, intellectual property rights, and investor protection, among other things.

India and Free Trade Agreements

• India currently has 12 free trade agreements, the most recent being the India-UAE CEPA.
• In 2020, India opted out of the Asia-Pacific region’s massive Regional Comprehensive Economic Partnership.
• FTAs have had mixed results in the past, prompting the Confederation of Indian Industry to call for a review of existing trade accords.
• The FTA between India and Sri Lanka has led to a small increase in bilateral trade and limited diversification of exports.
• The FTA between India and ASEAN shows that imports of food and drinks, consumer products, and industrial supplies have increased. Still, imports of petroleum, transportation equipment, and capital goods have decreased, depriving India of any significant benefits from the trade agreement.
• India has reaped little gains from the FTA with South Korea.
• India’s productivity has increased due to the FTA with Japan, which has increased the share of industrial supplies, transportation equipment, and capital goods imports.

India- ASEAN Free Trade Agreement

India and the Southeast Asian Nations Association recently celebrated 25 years of engagement and cooperation.

With economic reforms starting in India in 1991, the government launched the ‘Look East Policy,’ which focused on East Asia and Southeast Asia in particular.

Successive governments vigorously implemented the strategy. The ‘Look East Policy’ was upgraded to ‘Act East Policy’ with the change of regime in 2014.

The relationship between India-ASEAN ties has a long history. Southeast Asia has extensively borrowed from India in terms of culture, and there have even been instances where Indian kings have travelled to Southeast Asian nations and created new dynasties.

With the end of the colonial era, India and ASEAN relations began to improve again.

People interacted more, resulting in more transactions and economic growth.

The Look East Policy was revolutionary, and there was no looking back, just growth in relations between the two regions.

Challenge in India- ASEAN Free Trade Agreement

Although the ASEAN Trade Pact has greatly aided India’s trade, the problem remains that the deal has benefited the ASEAN region more than India itself. Domestic markets have suffered intense competition due to the goods agreement since they must compete with the ASEAN region’s cheaper commodities. For example, palm oil from Indonesia and rubber imports from Malaysia have made life difficult for local palm oil and rubber manufacturers, particularly in Kerala, where rubber farms have complained about cheaper imports since the agreement was inked.

Another disadvantage of the agreement is that India has not garnered many benefits from the services agreement. The FTA will not be enforced until all nations have accepted it in their legislatures, according to ASEAN norms. This has produced a lot of problems for India because the Philippines has not approved the FTA in services, which means that there would be direct service rivalry between India and the Philippines, which can be a disadvantage.

With the use of statistics and trade numbers, it has become clear that the trade imbalance favours ASEAN and that India’s trade deficit with the region is growing, wreaking havoc on its deficiency in the current account and, as a result, hurting India’s overall fiscal health.

Future of the FTA 

The unilateral termination of BITs with so many countries should be reconsidered, especially given India’s projection as a global economic bright light. The measure is regressive since it creates more uncertainty for foreign businesses investing in India. Regarding the future of the FTAs, India should be very cautious about the negotiating clauses as otherwise, they might lead to problems.

 Despite having a strong services sector in a few categories (IT, ITES, Healthcare, and Education, for example), the agricultural and industrial sectors, particularly Micro, Small, and Medium-Sized Enterprises, are still not as mature and robust as those with which India is negotiating FTAs.

To achieve a competitive advantage in the services sector and access to global markets in services, which are also limited due to the country’s reservations, India compromises on the primary and secondary sectors, affecting too many livelihoods and the economy as a whole.

As a result, international discussions should only take place after thorough consideration and knowledge of the circumstances.

Conclusion

To achieve a less onerous compliance approach, FTA discussions should contain terms and conditions that introduce more transparency and predictability regarding Non-Tariff Barriers. India should look into more regions ready for a trade deal with the country, as there are a lot of opportunities to expand India’s market access to Africa, Central Asia, and Southeast Asia. To develop the free trade policy, geopolitical difficulties must be dealt with, and the process of selecting trading partners must be modernised. Existing trade agreements that aren’t achieving the desired effects should be reviewed and renegotiated.

According to reports, India’s low export competitiveness has prevented it from fully utilising the FTAs’ potential. As a result, India should increase its export potential and competitiveness.