Context: India and the ASEAN countries reached an agreement to review their free trade pact for goods and set a 2025 goalpost for concluding the review aimed at addressing the “asymmetry” in bilateral trade.
- ASEAN-India trade took over a decade to double the value of trade. The bilateral trade was $57 billion in 2010-11, when the FTA came into effect, and rose to $131 billion only in 2022-23.
- While India’s exports to Asean increased from $ 25.63 billion in 2010-11 to $ 43.51 billion in 2022-23, its imports also increased from $ 30.61 billion to $ 87.59 billion in the same period.
- India’s trade balance with ASEAN has deteriorated after the implementation of the FTA.
- With Vietnam, the surplus in trade balance in 2010 changed to a deficit in 2020, standing at $ 1068.6 million.
- After the implementation of the Asean-India FTA, surplus in trade balance has been recorded with Cambodia, Lao PDR, the Philippines and Myanmar. T
- This indicates that Asean has gained a trade surplus on the current account, and India has witnessed a trade deficit.
- As evident from the below graph, India- ASEAN trade strengthened post the FTA in 2010 however the degree of increase in imports has been much higher than exports to ASEAN. The wedge between import and export from and to ASEAN has increased post the FTA which was intertwined till 2005.
- India maintains a trade deficit with the world which has remained the biggest cause of concern for the country. Approximately more than 10% of the trade deficit that India has with the World is contributed by ASEAN.
- However the trade deficit trend of India-ASEAN has largely remained disintegrated with India’s total deficit trend which shows that India’s trade basket with ASEAN is diversified/distinct as compared to India’s major import commodities such as petroleum products, gems and jewellery from the world.
Economic Survey 2016-17 opines that India’s increased trade with FTA countries is not due to diversion of imports from more efficient non-FTA countries. The three major observations are
- Rise in imports of electronic products: As evident from trade figures, imports of electronic products have continued to be at high levels over the years. The electronics industry of ASEAN is the biggest gainer of India-ASEAN FTA.
- Rise in import of minerals and metals: FTA between India and ASEAN has led to a sudden spike in import of copper wire and Bituminous coal from ASEAN especially Malaysia and Indonesia respectively.
- Trade concentration of top 10 products imported by India from ASEAN: 61% of light vessels that ASEAN exports to the world are destined to India, over 40% of copper wire exported to world by ASEAN is imported by India, coal imports too are over 35%.
It can be concluded that the premise that FTA has not led to diversion of imports from more efficient non-FTA countries to inefficient FTA countries might not hold true. Export diversification by destination country is a widely accepted indicator of trade competitiveness of a country in a particular commodity.