Here’s why India is keen on country-specific free trade agreements

As the day of the signing of the Free Trade Agreement (FTA) between India and the United Arab Emirates approaches, India Inc is optimistic about the outcome of the proposed FTAs ​​with the United Arab Emirates (UAE) , the United Kingdom and Australia. It seems that India now prefers national free trade agreements rather than regional cooperation agreements on trade and business.

Recently, Union Trade Minister Piyush Goyal said that India no longer signs free trade agreements just to join a group. Instead, India envisions reciprocal access, good market conditions and a level playing field in trade in goods and services.

According to Goyal, India is considering FTAs ​​with nations that have values ​​of democracy, transparency and mutual growth.

How important is the FTA with the UAE?

The draft FTA between India and the United Arab Emirates is almost finalized and the two countries will sign it on February 18. The FTA with the United Arab Emirates is essential for India as it is the gateway to Africa and the European Union (EU).

India has already started talks on FTAs ​​with the United Arab Emirates, the United Kingdom, the European Union (EU), Australia, Canada and Israel. The UAE is India’s third largest trading partner in bilateral trade and the second largest destination for Indian exports after the United States. Bilateral trade between India and the UAE stood at $59 billion and exports at $29 billion in fiscal 2020. The UAE is the eighth largest investor in India.

FTA with other countries

Formal negotiations for the India-UK FTA started on January 13, 2022. Several rounds of negotiations have taken place. India expects £28 billion traded by 2035 as it expects to unlock a huge new market for UK manufacturers engaged in multiple verticals. Two-way trade between India and the UK stood at £23 billion in 2019.

India and Australia are also moving closer to an interim FTA, which is the India-Australia Comprehensive Economic Cooperation Agreement (ECSC). India is keen to keep dairy and agricultural products out of the ECSC and aims to focus more on non-domestically produced goods. India will seek to assure its farmers that there will be no negative impact on domestic agriculture and dairy products.

The interim FTA between India and Australia will reduce import duties and expand the trade basket of both nations. India lacks pulses, grains and oilseeds and is interested in the textile, gemstone, jewelery and leather sectors.

Why country-specific FTAs?

India is also preparing to finalize FTAs ​​with the UK, Australia, EU, Canada and other major economies. The recent economic survey highlighted India’s need for FTAs ​​as it will help diversify exports and explore new horizons for the promotion of its products.

We observe that 40% of Indian exports are limited to only seven countries. This indicates that India needs to do much more to widen its export basket and reinvigorate the promotion of exports to new shores, suggests the Economic Survey.

For the current fiscal year ending March 31, India is targeting an export target of $500 billion, up from $291 billion achieved in FY21. India recorded $197.89 billion from April to September 2021, up 57% from the corresponding period of the previous year.

India’s concerns over RCEP

India has a trade agreement with ASEAN countries, but it has failed to deliver the desired dividends. India demanded the removal of non-tariff barriers, as well as the reduction of market restrictions for the agriculture and automotive sectors. Citing the same reasons, India exited the Regional Comprehensive Economic Relationship (RCEP) in November 2019.

India was part of RCEP’s drafting committee from its inception and negotiations between participating countries began in 2013. The regional trade agreement was signed by 15 countries, but India pulled out. The main reason for India’s exit from RCEP was China’s dominance of the trading bloc and the lack of action to address India’s concerns. India’s apprehensions about safeguarding the interests of industries, agriculture and dairy sectors have not been taken into account.

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(Edited by : Thomas Abraham)


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