Free trade agreements find few takers despite India's high export hopes

Commerce Secretary Rita Teotia got the loudest applause at the Delhi Dialogue last week for her firm assertion that free trade agreements (FTA) India has signed up are not popular within the country, including the ambitious 15-nation Regional Comprehensive Economic Partnership (RCEP).

Addressing an audience of Indian business chambers like Ficci, external affairs specialists and delegates from some of the Asean think tanks, she said, “FTAs have to show they add to jobs. They have to allow our businessmen to do business with countries we have signed those with.” Her assertion makes clear that FTAs not only do not enjoy political support in India, the sixth largest world economy, but with only 1.65 per cent share of global exports, as per WTO data, they are also in the sunset mode.

The seven FTAs are not seen as necessary for India’s expectations to double the size of her economy by 2025. The government has plans to raise Indian exports from the current $302.8 billion (2017-18) to $1 trillion in the same period, but hopes to do so without sewing up new trade deals with partners.

The secretary’s outburst came within days after a media report that both India and European Union are likely to formally announce the end of talks to sign the FTA. India has not denied the report. Experts agree the FTAs India had signed on were based on creating political alliances and are seen as of little importance to push Indian foreign trade. So, politicians across the aisle treat trade treaties more as an albatross than electoral dividends. The suspicion is shared by the bureaucracy, too, as the generous support for the secretary’s position among the audience demonstrated.

Indian FTAs are rudderless, said Amitendu Palit, Senior Research Fellow and Research Lead (Trade and Economic Policy) at the Institute of South Asian Studies, Singapore. “The priorities also get muddled due to lack of convergences between commercial and foreign policy objectives. In most countries, FTA talks commence only after extensive consultations between foreign and trade ministries. In countries like Australia and Canada, these departments have merged as Department of Foreign Affairs and Trade. Such an approach appears to be missing in India”. 

Agreeing with him, former IFS officer Ashok Sajjanhar said India’s FTAs with Bhutan, Afghanistan or even Sri Lanka were more for diplomatic reasons. “But even with the India-Asean FTA (signed in 2010) which had an economic logic, the political benefits are not made clear.” He said during his stint at the commerce ministry, an import of top end sarees from Bangladesh became a political hot potato as representations against the imports poured in from West Bengal. 

The imports had to be scuttled.

At a larger scale, this angst continues. This month, India has announced a set of retaliatory tariffs on US goods. It has notified the WTO about its intention to impose tariffs on US imports worth approximately $240 million. The USA is India’s largest trading partner. “India is not one of the topmost exporters of steel and aluminum to the US and, therefore, would not have been hit as hard by these tariffs as larger exporters like Brazil, Korea and Japan would have been. Incidentally, none of these countries have resorted to retaliatory tariffs,” notes Palit. However, the commerce secretary said the concern on FTAs and the tariffs on US goods should not be linked though both reflect India’s increasingly clear demonstration of going solo in trade issues.

Former commerce secretary Rajiv Kher and now distinguished fellow, RIS, during whose term India was close to sewing up an FTA with Australia, agrees it would politically have been difficult to sell the benefits.  

“FTAs work best when there is a complementarity, and in this case we would have suffered.” Kher did not offer any remarks on why New Delhi had engaged Canberra for the aborted trade talks, in the first place. Though Sajjanhar says it was the commerce ministry that primarily pushed the FTAs, once the political high noon was over, the eventual negotiations ensured a shallow FTA. The India-Singapore CECA was signed in 2005 on for India to escape the repeated stock market meltdowns due to perceived flow of hot money from Mauritius. Once that scare passed, the treaty lurched. India has exported just $10.2 billion to the island in 2017-18 and imported goods worth $7.5 billion.

While the commerce ministry feels there is enough room to add to India’s trade with countries, there is no reason to rush to sew up preferential trade agreements. Teotia said, “Once we signed on the India-Asean FTA in 2010, the pressure has built on us to be more ambitious in RCEP. The ambition is too high on goods and low on services”. She added that India will remain engaged with the negotiations, though. 

Second and concluding part of the series tomorrow.