Can India afford to stay out of FTAs?

Aug 28 2014, 02:57 IST
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SummaryFTAs are here to stay and cannot be wished away. We need to devise ways to better manage and more effectively utilise them

For quite some time India’s engagement with free trade agreements (FTAs) has come under scrutiny, criticism and even outright opposition from various quarters. Concerns have been expressed on the adverse impact of FTAs on the domestic industry. The Economic Survey 2010-11 observed that while there are benefits from the FTAs for Indian exports, in some cases the benefits to the partner countries are much more, with net gains of incremental exports from India being small or negative. Some FTAs are under review as it was felt that they have not been beneficial for the country.

In view of the widespread reservations against FTAs, an in-depth impact analysis of such deals would help us obtain a more objective and informed assessment of this issue. However, such exercise is constrained by serious data limitations. Statistics on India’s trade flow through the ‘FTA route’ are not available in the public domain (though last month some aggregate-level figures on our preferential imports were quoted in media reports). In the absence of disaggregated data on ‘exports or imports effected under FTA or preferential duty’, total trade statistics (MFN plus preferential) are typically used as a ‘proxy’. So, any analysis is unlikely to be robust and may not reflect the correct picture.

Ficci study and perception surveys suggest that considerable negative effects mark India’s experience with FTAs. India’s imports from major FTA partners surged by a higher margin and, as a result, India’s trade deficit with them widened. In relative terms, our FTA partners (such as South Korea and Asean) have been able to take more advantage from the trade deals and secure greater access to Indian market. For example, India’s exports to South Korea moved up from $3.4 billion to $4.1 billion between pre-CEPA (2007-08 to 2009-10) and post-CEPA (2010-11 to 2012-13) periods. In the same period, India’s imports increased from $7.8 billion to $12.1 billion. Thus, India’s trade deficit widened from $4.4 billion (pre-CEPA) to $8 billion (post-CEPA).

To cite just product-specific instances, worried over growing imports from Japan and Korea, a number of leading domestic steel makers have suggested import of steel and steel products from these countries be brought under negative list to safeguard the interest of local firms. Similarly, domestic paper industry has pointed out how the huge potential for the sector is being thwarted by the India-Asean FTA. This trade deal has provided the window to the paper industry of select South-East Asian

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