With 88% trade deficit rise, India embarks on FTA overdrive

Marking the commencement of the CEPA, Commerce Secretary BVR Subrahmanyam handed over Certificates of Origin to three exporters from the gems & jewellery sector.

The CEPA is expected to increase total value of bilateral trade in goods to US$100 billion and services to US$ 15 billion within five years. India is expected to benefit from preferential market access provided by the UAE on over 97% of its tariff lines which account for 99% of Indian exports to the UAE in value terms particularly from labour-intensive sectors such as textiles, leather, footwear, gems & jewellery, sports goods, plastics, furniture, agricultural and wood products, engineering products, pharmaceuticals, medical devices, and automobiles. Indian service providers will have enhanced access to 111 sub-sectors from the 11 broad service sectors.

The agreement, Subrahmanyam said, envisioned a target of USD 100 billion worth of trade, but given the size of India's market and the access that UAE would give to India, much more could be achieved. Stating that the UAE would be a gateway to the world, he underscored the need for India products to be competitive in the international market. “There is a need to build and augment our capacities”. He also added that the government was working on reducing the logistics cost so that products from the hinterland could also be competitive.

Stating that USD 670 billion of exports (goods and service) during last fiscal constituted 22-23% of the GDP, Subrahmanyam said that exports are an important engine of growth in every economy and added that the world was looking to India as a reliable partner.

The Economic Cooperation and Trade Agreement (ECTA) that India signed with Australia on 2 April too is big. The agreement, which eliminates tariffs on over 85% of Australian exports to India and 96% of Indian goods exported to Australia, will boost trade between the two countries to $45-50 billion over five years from the current estimate of $27 billion, besides creating over 10 lakh additional job opportunities.

The ECTA has been a win for the government since negotiations had begun over a decade ago in 2011, and were restarted only in September 2021.

The clearly laid-out Rules of Origin (RoO) of ECTA are aimed at creating anti-dumping measures. The RoO are meant to ensure that they should be “wholly obtained or produced in the territory of one or both of the parties”. So, there would be no dumping unless they contribute to the production of any of the items already listed in the ECTA.

The Indian textiles industry should gain, especially from the import of high quality cotton produced from Australia and export of high value-added textiles and apparel to Australia (7-10 times value addition) .

India has already permitted 300,000 bales of duty-free import of cotton of staple length 28 mm and above from Australia under the ECTA. This is expected to help the cotton knitwear sector and also bring about some semblance of stability in the cotton prices that have been shooting through the roof.

India has about 3-5% of the share of Australia's $2 billion Australian market of footwear and leather accessories, which is dominated by China. With duty-free exports, India can hope to increase its share especially with China-Australia political relations on a slide down. However, it is not clear how this can eventually play on the ground given that Australia is a partner of the Regional Comprehensive Economic Partnership (RCEP), but India is not.

India has been furiously negotiating deals ever since the RCEP came into force earlier this year.

The EU: Trade talks between India and the EU which began in 2007 have been in limbo since 2013 following disagreements over intellectual property rights and movement of professionals, among others. But now, with Russia and China closing ranks over the NATO reaction to the Ukraine war, the EU has been looking for new trade partners.

In late April, the President of the European Commission, Ursula Von Der Leyen, visited India and held meetings with Prime Minister Narendra Modi, President Ram Nath Kovind and External Affairs Minister S Jaishankar. The two sides have agreed to establish a trade and technology council which will allow India and the EU to address challenges in trade, trusted technology and security, deepening cooperation in these fields. The US is the only other country which has a similar agreement with the EU.

An initial round of negotiations on FTA are scheduled for June with an agreement hopefully in place by late 2023 or early 2024.

The UK: Even as the euphoria over the EC President's visit to India was yet to die down, the UK Prime Minister Boris Johnson visited India, kindling hopes of an FTA between the two countries.

Following a meeting between the two Prime Ministers, India and the UK have set an ambitious target of concluding a “comprehensive and balanced” FTA by Diwali this year to double bilateral trade by 2030.

According to India Exim Bank, a preferential trade agreement between the two countries could result in a rise of India’s imports by $2.3 billion, with an expected net revenue loss of $385.7 million. India’s exports could rise by $245.1 million with an expected net revenue loss of $110.5 million to the UK. With imports acting as inputs for the exported products, cheaper imports also reduce the cost of exports, thus making it more competitive in the international market, the study concluded.

Other countries: FTA talks between India and Israel are expected to begin in May, with a deal expected to be signed within a month. The total merchandise trade between the two countries was US$4.67 billion in FY 2020-21. India is also in bilateral trade talks with Namibia, South Africa and Canada.

With political compulsions and strategic interests increasingly dictating trade policies at the global level, India is all set to make hay.