A recent study by the Global Trade Research Initiative (GTRI), a trade policy think tank, suggests India may be disadvantaged in its ongoing free trade negotiations. According to the study, India might end up giving up more concessions than it can gain from these agreements.
The two most crucial free trade agreements (FTAs) that India is currently negotiating are with the United Kingdom and the European Union. The GTRI reveals that while more than half of the imports by these potential FTA partners already enjoy zero tariffs, India only levies such tariffs on 6% of its imports. This significant disparity could pose challenges for Indian exporters seeking parity with their competitors from the developing world.
Furthermore, the think tank highlights that India’s previous FTAs with Japan, South Korea, and the Association of Southeast Asian Nations (ASEAN) have shown limited success. Many Indian firms, when faced with low import duties, prefer not to utilise the FTA route due to the high compliance costs associated with these agreements.
The GTRI founder, Ajay Srivastava, emphasises the appeal of forming FTAs with India for countries worldwide. By accessing the Indian market through these agreements, high import duties can be avoided, and a significant new market opportunity can be unlocked.
It is important to note that India’s analysis of its previous FTAs with ASEAN, South Korea, and Japan reveals a substantial increase in its merchandise trade deficit with these partners. Additionally, India’s exports to these FTA partners have grown at a slower rate compared to imports.
Developed countries tend to impose low or zero import duties on medium-to-high-tech goods while imposing higher duties on products like shirts and shoes, typically manufactured by developing countries. When a developing country enters an FTA with a developed nation, it gains preferential access for its shirts and shoes but must remove duties on most other products. Meanwhile, the developed country gains significant additional market access in various sectors.
If not carefully negotiated, these FTAs could challenge India, potentially resulting in an imbalance in trade benefits. The Indian government will need to carefully consider the implications of these agreements before making any concessions that might undercut its industries.
