India moving on early harvest agreements is good, but what is needed is FTAs

By: |
November 09, 2021 5:20 AM

While India should be mindful of past experience, a higher level of ambition is definitely warranted

A Comprehensive Economic Partnership Agreement with the UAE is likely by March 2022.A Comprehensive Economic Partnership Agreement with the UAE is likely by March 2022.

Largely due to the compulsions of boosting exports as an engine of growth—with ambitious targets of $400 billion this year and $2 trillion in goods and services exports by 2030—the government has revamped its strategy on free trade agreements (FTAs). Close to 20 deals are currently under negotiation; at least six pacts. including those with the UAE, UK, GCC, Australia, Canada and the European Union, are being fast-tracked.

A Comprehensive Economic Partnership Agreement with the UAE is likely by March 2022. The level of ambition in the deals with the UK and Australia, for instance, seems limited to early harvest agreements or mini-FTAs, for trade in a limited set of goods and services. They could be a precursor for a full-fledged FTA, but only much later. India’s warming up to trade deals should be welcomed.

Not so long ago, it signalled that it was not keen on FTAs, especially if they happened to be deals with China by stealth. It walked out of the Regional Comprehensive Economic Partnership, comprising the Association of Southeast Asian Nations together with China, Japan, South Korea, Australia and New Zealand.

New Delhi is also reviewing its FTAs with ASEAN, Japan, South Korea and other countries. Stakeholders like India Inc and farmers remain far from enthusiastic about RCEP, and FTAs in general, as the typical experience has been of trading partners inundating the domestic market with cheaper goods while importing less of Indian goods, resulting in large trade deficits.

Considering this deep-seated ambivalence regarding FTAs, the advice of some trade experts that India should be circumspect about such deals will unfortunately only reinforce the government’s innate caution. No doubt the country made a mistake with respect to the early harvest agreement for preferential trade in 83 commodities like electronics and automobiles with Thailand in 2004 as it had an inverted duty structure in which the tariffs on the final product are lower than the duties on inputs. But, effective opposition from India Inc has also not allowed this deal in the ensuing 17 years to graduate into an FTA, as has been pointed out by professor Amita Batra of JNU.

While India should be mindful of past experience, a higher level of ambition is definitely warranted to ensure that early harvest agreements graduate into full-fledged FTAs. India’s reluctance to go the whole distance in this regard contrasts with the enthusiasm shown by the UK, for instance. Considering the long historic association, and the growing stakes Indian companies have acquired in the UK, our preference for only a mini-FTA betrays a reluctant globaliser’s instincts. Trade is bound to look up if both partners remove barriers.

Despite the advantage of a trade surplus in India’s favour, the simple average tariffs on goods imported into India from the UK are three times higher than tariffs on Indian goods exported to the UK. Negotiations entail a process of give-and-take for greater access to each other’s markets. If India seeks greater market access, it must also allow UK to sell more of its goods and services.

Trade thus can be a win-win situation for both partners. For such reasons, India’s export drive can be better served with FTAs than through only early harvest agreements. Although the $400 billion exports target for FY22 is on track—judging by the $234 billion achieved in the first seven months—there is no room for complacency.

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