Who is afraid of a ‘new-age’ free trade agreement (FTA) that goes well beyond traditional pillars of goods, services and investments? Certainly not the Indian industry! At least that is the position of key chambers representing India Inc, in a discerning change from their usual demand for more and more protection against foreign competition over a decade ago.
India is negotiating ‘new-age and modern’ FTAs with the UK and the EU and hopes to forge some more with others in future. These FTAs differ from the traditional ones, as they cover, and involve the country’s commitments on a wide range of subjects. These may include labour, climate/environment, digital technology, public procurement, supply chains, e-commerce, gender, health, education and even some evolving sectors, in addition to the traditional pillars.
Indian policy-makers and industry had been traditionally averse to the inclusion of new areas, especially labour and environment, in trade pacts for fears that it would impose onerous and exacting standards (being adopted by the developed world) on domestic manufacturers that would be hard to implement without incurring huge costs, in which case their export competitiveness would erode further. Moreover, given that areas like digital technology and e-commerce are still evolving, taking commitments on them in trade deals that may remain valid for decades would crimp domestic policy space.
More importantly, there were fears that foreign firms could exploit the FTAs better and potentially flood the country with cheaper products. In fact, India remained cautious about any trade deal for about a decade before signing one with the UAE in February, as five of its six prominent FTAs that came into force between 2006 and 2011, had exacerbated New Delhi’s trade balance, according to an FE analysis.
These fears have subsided, if not entirely gone, with growing realisation that in an interconnected world, failure to adopt global best practices has a far bigger cost than embracing them. Moreover, with the emergence of several Indian multi-national companies and start-ups, which are not scared of competition, the protection-seeking mindset of traditional businesses is taking a knock.
Of course, industry players still want the fine-prints of any FTA to be fair and balanced, and seeks safeguards, wherever required, to have a level-playing field. For instance, New Delhi may have to negotiate with the UK and the EU for an exemption from their carbon border adjustment measures, which typically aims to tax imported goods, including steel and cement, from countries with less strict climate policies.
BK Goenka, chairman of Welspun Group, told FE that the new-age FTAs ‘augur well’ for the country. “The global marketplace in which Indian industry currently operates ensures, to a large extent, that the products are benchmarked to international standards and are competitive. The broad-based coverage of the FTAs would lead to technology acceleration and adoption of best manufacturing practices which would be particularly positive from an ESG Perspective,” Goenka said.
The Indian textile players would need to keep transforming themselves for these changes, which would ‘eventually help them mature into industry-leading global players’, he added. The labour-intensive textile and garment sector has been pitching for FTAs with the UK and the EU.
Chandrajit Banerjee, director general of CII, said industry is keen to see early conclusion of the FTAs with the UK and the EU. “CII is working with the government to ensure that while negotiating issues like public procurement, sustainability, intellectual property rights, the genuine interests of Indian industry are preserved.”
Arun Chawla, director general at Ficci, said, “These (modern FTAs) will not only promote meaningful economic activities in goods and services, but curate an ecosystem for exchange of global best practices, on diversity, inclusion and sustainability, with an objective to transform business value chains.”
The changing mindset of corporate India assumes significance, as the country is either negotiating or planning to start talks for a flurry of high-stake FTAs with key economies, such as the EU, the UK, Canada, Israel, members of Gulf Co-operation Council (GCC) and Australia. While an interim deal with Canberra is clinched, talks for a full-fledged FTA could start soon. Together these economies (excluding the GCC member UAE, with which an FTA is already signed) contributed as much as $108 billion, or 26%, to India’s merchandise exports in FY22.
Pradeep Multani, president of PHD Chamber of Commerce and Industry, said modern FTAs will further broad-base development of the country and improve people’s standards of living. Nevertheless, any new FTA must be tailored in such a fashion that it provides a level-playing field to domestic industry, he added. Proper safeguards need to be built in to ensure that FTA provisions aren’t abused to injure domestic industry, he added.
Assocham secretary general Deepak Sood said, trade negotiations on issues like health and education would be within a premise of ‘win-win’ for both India and its trading partner and in both these areas, global engagement would help India. “As regards labour and environment, India has been following global norms and is in the forefront of moving towards renewable and new energy,” he added.