Given India?s history of having benefited little from free trade agreements (FTA)?between 2004 and 2012, the share of Indian exports to FTA partners slipped from 38% to 33%?experts had called for a review of the policy before India signed one with the Association of South East Asian Nations (Asean). There are many reasons why FTAs haven?t paid off for India. A key one is that while services form the chunk of India?s GDP, their exports have consistently remained low?in FY14, services formed a little under a third of the Indian export basket.
Now that an FTA has been signed with Asean for services and investments, it is pertinent to see where the country?s trade with the bloc?s member-nations stands. In 2013, of the 10 Asean nations, India had a deficit of trade (imports more than exports) with six?Brunei, Indonesia, Laos, Malaysia, Myanmar and Thailand?up from four in 2003; over the intervening decade, Brunei and Laos have more than corrected their trade imbalance with us. What?s worse, India?s overall trade deficit with Asean countries, in 2013, was nearly thrice (at $4.4 billion) of what it was in 2004 ($1.6 billion). This deficit has a lot to do with India?s poor showing in manufacturing exports to the region?in fact, the share of Indian manufacturing exports fell from 12% in FY12 to 10% in FY14. As per data from RBI, goods exports have trended downwards for quite some time now.
This shows that India?s earlier pursuits of trade agreements with Asean nations have not worked out in its favour. However, the new FTA is one for services, and this is the sector where India can leverage its strength in the region. The FTA is expected allow freer movement of professionals, especially of those in the IT/ITeS and financial services sectors, between the bloc and India. Besides, with the new government focused on strengthening manufacturing in India, there is the possibility that imports of goods could come down, erasing some of India?s trade deficit.