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Mint Primer: Why India must trade up to be a $30 tn economy
Summary
- Trade deals are critical for easy market access and go a long way in attracting manufacturing investments.
India’s deal with the four-nation EFTA or European Free Trade Association may not see a huge jump in trade. But it’s important for another reason. Mint looks at the significance of free trade agreements for India going forward.
How significant is the India-EFTA trade deal?
Unlike a possible deal with the European Union (EU) or the US, India’s largest trading partners, the India-EFTA deal is unlikely to boost bilateral trade by much. In the January-December 2023 period, India’s exports to EFTA, which comprises Iceland, Norway, Liechtenstein and Switzerland, was just $1.87 billion. Its imports were $20.45 billion but if you remove gold imports worth $19.65 billion from Switzerland (effective duty on gold remains unchanged post the deal), this too is minimal. The significant part is that EFTA has committed to invest $100 billion and create 1 million jobs in India over a 15-year period.
What is the status of India-EU trade talks?
In June 2022, India and the EU resumed their trade negotiations, stalled for nine years since 2013. The talks are currently on. Negotiations for a trade deal that first began in 2007 did not progress as there were differences in scope and expectations between the partners. The areas of disagreement were wide—tariffs on cars, wines, dairy products and liberalization of visa regime for Indian professionals. A deal will, no doubt, help boost bilateral trade significantly from the current $120 billion as the EU is India’s second largest trading partner and India is the EU’s 10th largest trading partner.
What about a free trade deal with the US?
The US is India’s largest trading partner with bilateral trade in FY23 coming in at $129 billion. The US is also the third-largest source of foreign direct investment (FDI) into India, totalling $6.04 billion, or 9% of total FDIs in FY23. No formal talks are on between India and the US for any trade deal due to strong opposition from trade unions in the US, which fear jobs losses.
Why are trade deals important for India?
India dreams of becoming a $30 trillion economy by 2047 (its GDP size today is $ 3.6 trillion). To achieve this, it has to grow its GDP at over 8% per annum. And that requires India becoming the manufacturing base of the world. The Centre has been pursuing policies such as ‘Make in India’ and production linked incentives to increase exports and ride on the ‘China+1’ strategy of global manufacturers. Trade deals are critical for easy market access and go a long way in attracting manufacturing investments.
What is India’s record in striking trade deals?
Till a few years ago, India was seen as a difficult negotiator when it came to protecting its market and dealing with environmental and labour norms. That may explain why it had very few trade deals to speak of. India went without a trade deal for nine long years before changing its tack in 2021. Since then, India has signed 13 trade deals with countries such as Mauritius, United Arab Emirates, Australia and now EFTA. EU, UK, Oman, Israel and Peru are among 50 nations India is negotiating a trade deal with.
