After a long dry spell between 2012 and 2021, New Delhi has quickly wrapped up three FTAs—one each with Mauritius, the United Arab Emirates (UAE) and Australia. It has also recently revived select FTA talks, which were kept in cold storage for over a decade; for instance with the European Union (EU). India has been negotiating with about 50 nations, at bilateral as well as bloc levels, to ink new FTAs.
The objectives seem to be two-fold—one, make economic gains through market access, and, two, make certain political statements. In a fast-changing geopolitical scenario, the pace and priorities of these talks are also determined by various new considerations such as friendshoring. This means preferring supply chain networks from nations in friendly strategic groupings to cheaper products from geopolitical rivals.
How many of these ongoing talks will culminate in formal pacts for India by the end of 2024? And which country or bloc has been the hardest nut to crack, and why?
“To my mind, only one FTA, with Oman, could happen before the model code of conduct for the general elections kicks in next month,” says Jayant Dasgupta, former Indian ambassador to the World Trade Organization (WTO). “The one with the UK is unlikely to be inked before elections. I would say there is only a 50:50 chance of it getting signed by the end of 2024. The negotiations with the EU won’t be completed by the end of the year.”
Former commerce secretary Rajeev Kher, too, gives a practical timeline.“An FTA with Oman should be easier. It could adopt the same template as the UAE. Such an FTA is a political statement rather than for any major market access,” he says, adding that it could be signed at any moment. It will result in few economic spinoffs as items such as basmati rice, fruits and medicines are already duty-free. In FY2023, India’s merchandise export to Oman was worth $4.5 billion.
What would be the toughest FTA negotiation for India?
“The EU will be the hardest nut to crack. As the EU negotiates with India, it won’t be merely looking at market access for its automobiles but will also force us to comply with certain environmental and labour standards,” says Kher. Apart from continuing its bilateral talks with the UK, Oman, Peru and Israel, India has been engaged in discussions with a number of blocs—the 27-nation EU; the European Free Trade Association or EFTA, which comprises of Iceland, Liechtenstein, Norway and Switzerland; the Eurasian Economic Union (EEU), which includes Kazakhstan, Kyrgyzstan, Armenia, Belarus and Russia; the Gulf Cooperation Council or GCC, which is made up of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE; and the Southern African Customs Union (SACU) of Botswana, Eswatini, Lesotho, Namibia and South Africa. Talks with Canada are now on pause mode.
India, which is a member of the IndoPacific Economic Framework (IPEF), has been holding talks with partner countries such as Australia, Brunei, Fiji, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, Vietnam and the US. Supply chains have been the most important pillar of these negotiations, which are not expected to lead to typical free trade agreements.
A recent report, “India FTA Outlook 2024”, by the trade think tank Global Trade Research Initiative (GTRI), says
“everyone wants to do an FTA with India”. “Countries ranging from large economies like the US, Europe, Japan and the UK to smaller ones like Oman, Peru and Mauritius either already have or are actively seeking an FTA with India. The main reason for this is India’s high import duties, which make it difficult for these countries to access India’s large and rapidly growing market,” it says.
This means, by inking an FTA with India, a supplying nation will have access to a market of 1.4 billion people without having to pay import duties on substantial trade. Currently, India has 13 functional FTAs involving 22 countries. These include pacts with Japan, South Korea and the Association of Southeast Asian Nations (ASEAN).
THEY LIKE EU
From India Inc’s perspective, some pacts in the works can be game-changers. Mithileshwar Thakur, secretary general, Apparel Export Promotion Council (AEPC), says, “Import duty for apparel in the UK and the EU is as high as 9.6%. Bangladesh enjoys zeroduty access and so does Vietnam. FTAs with the UK and the EU will help our sector tap the all-important European market.”
Thakur, who was part of India’s FTA negotiations earlier, adds that India’s apparel exports to Australia grew by 5.1% in April-November 2023, y-o-y, even as India’s overall apparel exports fell by 14.3% in the same period, because of the FTA in 2022, which made most imports from India, including apparel, tariff-free.
“Our sector has gained from the FTA signed with Mauritius as well, where a growth of 9% has been witnessed in the current fiscal. For the UK and EU markets, we have to, however, focus on winter wear. The work is in progress, thanks to India’s production-linked incentive (PLI) scheme for manmade fabrics and garments,” he adds.
An FTA with the EU could help several other sectors. “An FTA with the EU will mean that India’s gem and jewellery exports will go up by 20-25%,” says Colin Shah, founder and MD of Kama Jewelry, pointing out how Thailand has leveraged its diamond market by inking dozens of FTAs.
“Broadly, import duties on gem and jewellery vary from 2% to 20%. An FTA means the duty falls to zero,” says Shah, who is also a former chairman of the Gem & Jewellery Export Promotion Council. He, however, adds that the existing duty in the UK is already low—2%.
“So, an FTA with the UK will help us only marginally. Oman is anyway a very small market. So, the key gain will be when we have a trade deal with the EU,” he says. From India’s first FTA in 1975, when New Delhi signed the Bangkok Agreement with Bangladesh, Sri Lanka and South Korea, the nation has traversed a considerable distance.
FTA is now the mainstay of India’s trade policy. This trade tool, if deployed effectively, can offer both economic gains and geostrategic dividends.
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