India pushing forward the long pending FTAs. The aim is to achieve the $2 trillion export target by 2030, and address disruptions in global supply chains created by the pandemic and the ongoing Russia-Ukraine war.
- Free trade pacts remove entry barriers for goods & services between two trading partners.
- Under such agreements, goods & services can be bought and sold across international borders with minimal or no government tariffs, quotas, or subsidies.
- India has resumed talks with EU and Australia and has started talks with UK. Recently, India had finalised FTA with UAE. The agreement is expected to double bilateral trade to $100 billion in next 5 years, up from current $50-60 billion, while eliminating tariffs on a range of products being exported by India and UAE.
- India and Australia signed first part of Australia-India Economic Cooperation & Trade Agreement (AI ECTA).
- India is focusing on Early harvest deals – where both parties sign an agreement on the easier aspects while the main negotiations on tariff elimination on a range of products are kept for a later period
- FTAs with countries including Israel, Canada, New Zealand, Indonesia and Thailand are also in Pipeline.
WHY A RENEWED PUSH FOR FTAs ?
- Government was reluctant to clinch FTAs for past few years because it believed that FTAs were leading to increased imports.
- India has been aligning strategically with countries like Australia, France and UK. It is crucial to enhance economic ties too with these countries.
- India is not a part of any mega-trade pact like RCEP, is now increasingly entering minilateral arrangements like I2U2, IPEF & Quad. However, in these minilaterals there is no assured market access under such frameworks, and they are mostly focused on ensuring smooth operation of supply chains by maintaining a security framework.
- FTAs are seen as crucial to export led growth, earning Forex and employment generation.
- India wants greater market access in complementary economies, since market access through WTO negotiations would be difficult, given the slow pace of negotiations because of differences between Developed and Developing countries.
- To reduce the imports from China which are increasing despite the border clash.
- India wants to improve its trading ties with friendly countries in the wake of rising Oil and Food prices because of the Ukraine war.
CHALLENGES AND HURDLES
- Reducing tariffs on imports for market access being demanded by partner countries.
- Domestic industry would be exposed to massive competition and faces the risk of losing market share.
- India has highest average tariff — 15% — in the Asia– Pacific region. The average import tariffs increased to 15% in 2020, from 13.5% in 2016, across industrial and agriculture products
- India walked out of the RCEP because of the pressure from domestic industry.
- Australia has sought major reduction in import tariffs on their agricultural produce which is opposed by India at WTO as well as on wines and spirits.
- Under India-UK FTA talks, one of the main demands is that of a slashing of tariffs on British whisky.
- Similar demands will also come up in talks for a trade deal with the 27-nation bloc EU, which will also seek tariff elimination in automobiles and auto parts.
- UK & EU are reluctant to finalise early Harvest deal.
- Overemphasis on Aatmanirbhar Bharat highlighting self-reliance has made many partner countries wary.