What does the FTA with EEU has in store for India?

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Updated: Jun 26, 2015 2:04 AM

The agreement will boost trade, benefit sectors such as pharma, textiles and food items, and can even counter the growing economic influence of China in the central Asian region

The signing of the free trade agreement (FTA) with the Eurasian Economic Union (EEU)—which is an economic union comprising Belarus, Kyrgyzstan, Kazakhstan, Russian Federation and Armenia—has immense potential for India to boost its relationship with the members of the region. The operation of EEU came into force on January 1, 2015, with the aim of integrating 176 million people and a GDP of over $4 trillion into a single market. EEU has vast reserves of natural resources comprising oil, gas, electric power, mineral fertilisers, coal, iron and steel, etc, and offers a ready market to be harnessed and explored. Undoubtedly, the FTA with EEU will bring in a lot of benefits for the Indian economy.

Boosting trade

India enjoys amiable relationship with all the countries of EEU. Once the FTA is in place, India will get the opportunity to explore strategic and economic ties with these countries. India is seen as a trustworthy partner to all the members of EEU and recent years have seen a significant momentum in bilateral linkages with these countries. For instance, ONGC Videsh Ltd recently received invitation by Kazakhstan to explore its Abai block for energy resources and it also signed a deal with Belarus to supply 500 tonnes of potash fertilisers. Despite this, the bilateral trade between India and the members of EEU is considerably low. While between India and Russia the volume of trade in 2013 was $10 billion, with Armenia it was $63 million, with Belarus it was $400 million, with Kazakhstan it was $505 million, and with Kyrgyzstan it was a mere $35 million. The FTA can lead to a spurt in trade.

Sectors expected to benefit

To promote economic convergence and cooperation, EEU has the concept of customs union and a single market. The whole idea of establishing customs union is to eliminate intra-bloc tariffs and not tariff barriers, and create a common external tariff policy to ensure the effective operation of a single market for goods and services and comprehensive policies.

EEU has fostered a common pharmaceuticals zone and a single market is expected to be created by January 2016 within EEU. Over the years, India has achieved an eminent global position in the pharma sector. By being part of the Comprehensive Economic Partnership Agreement (CEPA) with EEU, India will have immense influence on the region and will get an added advantage given the fact that Indian pharma industry is estimated to grow at 20% CAGR. Currently, Indian pharma products face non-tariff barriers in Russia, and the lack of time period for the implementation, registration and confirmation by Russia delays the supplies of these products; this can be overcome once the FTA is signed. Moreover, the growing credibility of Indian pharma and increasing healthcare costs have led to the Commonwealth of Independent States (CIS) including Armenia, Belarus, Kazakhstan and Kyrgyzstan eyeing Indian pharma products. Considering that the demand for pharma products in Russia and CIS nations will report a double-digit growth, the FTA will provide a huge opportunity for Indian pharma industry.

Further, Indian textile industry will benefit as the FTA will provide inherent incentives on the duty front. In particular, knitwear exporters will be able to reap the advantages of the FTA as the agreement will make Indian products cost-competitive. Additionally, exports of bovine, cow and buffalo meat and egg products, which faced stricter norms from Russia, will see relaxation once the CEPA is signed. In a recent development, Indian entities have been permitted to export egg powder to Russia, Kazakhstan and Belarus and the ban on the export of non-basmati rice and oilseeds from Russia is been lifted since EEU has been in force.

India is seen as a promising market for EEU members as there is huge demand for vehicles, equipment, chemical products, fertilisers, mining equipment, etc, from Russia. India too—for its security, energy and infrastructure needs—seeks Eurasia’s reserves of oil and natural gas. In fact, Vladimir Putin recently pointed out that “the union will be a hydrocarbon treasury, possessing a fifth of all global natural gas resources and 15% of oil reserves.”

This FTA is vital for investments in India’s infrastructure, defence and technology-intense sectors. For the Make-in-India initiative, the country has to improve its infrastructure and meet its energy demand. In December, Putin offered to build one of Russia’s most advanced helicopters in India. The signing of the agreement will ensure speeding up of the supply of regional and medium haul aircraft and also civil helicopters.

The FTA will improve connectivity too. The realisation of the North-South Transport Corridor—connecting India, Central Asia, Russia and Iran—will provide momentum to the trading relationship between India and EEU members by ensuring easy movement of goods and reducing time and freight costs. Granting business visas to Indian exporters will also get channelised once the FTA is in place.

Beyond trade

The FTA is not just significant from the economic viewpoint but also important to counter the growing influence of China in the central Asian region. China, through its massive investments and loans, has made deep inroads in the region, especially through its new Silk Road Economic Belt initiative that aims to improve the connectivity with central Asian regions. The CEPA can provide India further exploring multilateral trade with EEU as the Silk Road passes from India’s north through Eurasia in all directions.

Although on June 18 at the St Petersburg International Economic Forum 2015 India confirmed it will sign the FTA with EEU, it now needs to take forward the negotiations quickly as a huge potential exists for both the participants out of this deal.

The author is a research assistant, Observer Research Foundation, Delhi

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