Why India explores free trade agreements

Refrains from joining regional blocs as it sees them impediment to its industrial aspirations

Published: 30th October 2022 08:05 AM  |   Last Updated: 30th October 2022 08:05 AM   |  A+A-

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Express News Service

With conventional markets like the US and Europe slowing down, India is exploring new avenues to boost trade and export-led growth. The government has set ambitious trade and export targets – India aims to achieve a $2 trillion trade target by 2030, while it wants to achieve $500 billion merchandise exports by 2022-23 – and to achieve these goals it needs to explore newer trade partners. While it has avoided joining regional trade agreements, it continues to explore bilateral deals.

It recently entered into bilateral free trade agreements (FTAs) with the United Arab Emirates (UAE) and Australia. In addition, it is in talks with other countries and regions like the UK, Russia, Israel, Canada, Southern African Customs Union etc for trade deals. “Countries are looking forward to a system where they can expand their market presence. The conventional markets are slowing down. There has been a slowdown in the US and Europe. So, there is a need to diversify and go to as many economies as one can,” former commerce secretary Rajeev Kher told this newspaper.

Besides this, competitor countries have signed different multilateral trade agreements such as Regional Comprehensive Economic Partnership (RCEP) among other bilateral agreements between the US, China, Europe and several other countries.

“When competitor countries have bilateral pacts then naturally the advantage goes to them. So, whenever market demand arises, the market with bilateral pact will be preferred over others due to less duties,” Kher added. “In order to avoid exclusion from this preferential trade, more countries are getting into FTAs,” he further said. Lekha S Chakraborty, Professor at National Institute of Public Finance and Policy (NIPFP), feels there is inconsistency between India’s overall macro trade policies and FTA. However, she welcomes India’s readiness to engage in FTAs, especially after its abstinence from RCEP.

“Rise in tariff barriers can affect imports negatively. The commitment of the prime minister in several world forums about no retreat from globalisation is reinforced in this readiness to engage in FTA.  India’s preparedness to provide significant market access through FTA is a welcome move,” she says.
As per experts, India needs to enter into bilateral FTAs to ensure preferential market access and economic integration with selected countries. These FTAs help in diversification of export markets. India has no trade pact with the US, India’s largest trade partner.

Bilateral over multilateral trade pacts

According to her, in the changed scenario post-Covid where the major trade forums like the World Trade Organisation (WTO) are undergoing a transition in trade strategies, we can’t undermine the significance of bilateral trade agreements. India refrained from regional trade forums like RCEP as it continues to see such regional trade blocs an impediment to India’s major industrial aspirations. When the protectionist wave grips the global markets, bilateral trade pacts are preferred to regional ones.

“India is cautiously optimistic about the forthcoming India-US bilateral FTA in November. India is a slow-negotiator.  I can’t say anything about India-US trade deals till that negotiations happen,” says Chakraborty.An RBI analysis looked into the determinants of exports and imports for the period 1995 to 2020 incorporating the FTAs and reveals the sub-optimal benefits of FTAs. This RBI analysis showed the trade pacts have not had any significant impact on India’s exports, though have helped imports.

As per Dr Charan Singh, chief executive officer (CEO) of EGROW Foundation and former non-executive chairman of Punjab &Sind Bank, given the trend of deglobalisation, which is currently on way across the world, with every country focused on their domestic performance, providing employments to their local population and youth, it becomes important for bilateral trade pacts to be considered.

“In view of the changing pattern of global trade as well as the developing geopolitics to ensure uninterrupted supply of goods and services, countries will need to consider bilateral agreements. Further, given the constraints of geopolitics and sanctions, used as a tool as well as the weapon by some countries on others, bilateral trade pacts help ensure supply of essentials in any country,” Sindh said. He further added that the trading blocs have ensured that they are able to provide resources as well as vital markets to participants. In contrast, bilateral trade agreements help in providing markets for both input and output to the participating countries.



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