India’s trade negotiation landscape has evolved as of 2024, reflecting a cautious approach amidst rising trade deficits and concerns over the efficacy of previous free trade agreements (FTAs). The country is reassessing its strategies, particularly in light of the widening trade gap with partner nations and the impact of global economic shifts. In the wake of increasing imports and stagnant exports, India has temporarily paused trade negotiations with smaller nations like Oman and Peru. The Ministry of Commerce is developing a new Standard Operating Procedure (SOP) to streamline the negotiation process. This comes after India’s trade agreements, including those with the UAE and ASEAN, have been scrutinised for not delivering the anticipated benefits, leading to an important trade imbalance.
Background of India’s Trade Agreements
India has engaged in several FTAs over the years, aiming to enhance trade relations and boost economic growth. The FTA with the UAE, effective from February 2022, and the ASEAN agreement signed in 2010, were intended to facilitate trade but have instead resulted in a surge of imports that outpace exports. This trend raises questions about the effectiveness of these agreements and their long-term benefits to the Indian economy.
Challenges Faced
One of the primary challenges in India’s trade negotiations is the lack of consistent and streamlined procedures. The new SOP aims to address these issues by providing clear guidelines on negotiation processes, including team formation and hierarchy. Additionally, concerns over potential investment outflows and the influx of goods from partner countries that are not produced locally have prompted a reassessment of existing agreements.
Focus on Larger Markets
In light of the challenges with smaller nations, India is shifting its focus towards larger markets such as the European Union and the UK. These regions present opportunities for more substantial trade benefits. However, negotiations with these competitive markets have been stalled, primarily due to changes in leadership and differing trade priorities.
Impact of ASEAN and RCEP
The ASEAN FTA has been particularly contentious, with rising imports leading to an important trade deficit. The trade gap with ASEAN increased by 70% in FY23 compared to FY22. The region, which includes countries such as Indonesia and Vietnam, is crucial for India, accounting for about 11% of its global trade. The situation is further complicated by ASEAN’s participation in the China-led RCEP, which India opted out of in 2019 due to similar concerns over rising imports.
Future Directions
Looking ahead, India plans to refine its trade negotiation strategies, focusing on maximising export gains and ensuring that agreements yield equitable benefits. The Ministry of Commerce is also reviewing past FTAs to identify areas for improvement, particularly in the context of tariff asymmetry and the need for greater subject matter expertise among negotiators.
Questions for UPSC:
- Discuss the implications of India’s trade deficit on its economic strategies.
- Evaluate the effectiveness of India’s FTAs with ASEAN and the UAE.
- What are the challenges faced by India in negotiating trade agreements with larger economies?
- Analyse the impact of the RCEP on India’s trade policy.
- How can India enhance its negotiating capabilities in international trade?
