As the trade deficit widens, does India need a reality check on FTAs?

In the last decade, India has been bullish on signing Free Trade Agreements (FTAs) and has roped in many countries, neighbouring and others. Apart from bringing in investment opportunities, FTAs facilitate access to new markets by reducing or eliminating tariffs and trade barriers, which helps Indian exporters expand their reach and tap into larger consumer bases. FTAs can also integrate India into global value chains, enabling it to become a vital player in international trade and manufacturing networks.

However, a recent analysis casts doubt on the efficacy of India’s numerous FTAs , and has revealed that exports to countries lacking bilateral trade pacts are outperforming shipments to FTA partner nations. The findings have been published by the Global Trade Research Initiative and highlight the enormous 18.2% decline in merchandise exports to FTA partners during the initial six months of 2023, compared to an overall shipment decrease of 8.1%. Overall India’s merchandise exports in Jan-June were $ 218.7 billion, down 8.1% from last year. Imports during the period were at $ 325 billion, down 8.3% on year. This divergence prompts a reconsideration of the expected advantages of these FTAs.

The study underscores a reduction in FTA partner’s share of overall exports, dropping from 30.1% to 26.8% in Jan-June 2023. Notable underperforming FTA partners include South Asia Free Trade Area AFTA (33.2%), South Korea (30%), Australia (25.4%), Japan (15.6%), and ASEAN (13.4%). While FTA imports also dropped by 11% in the same period, India’s merchandise exports totaled $218.7 billion, exhibiting an 8.1% decline from the prior year.

A substantial trade deficit with FTA partners, particularly with Asean at $16.1 billion, underlines the need for a review of Asean-India Trade in Goods. Notably, India maintains a surplus only with SAFTA, amounting to $10.3 billion.

These revelations spark a critical assessment of India’s trade agreements, challenging their ability to deliver anticipated economic gains. As India’s foreign trade landscape evolves, recalibrating trade strategies and fostering robust partnerships may be imperative for sustained growth.

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