Breaking down EFTA's $100-billion investment promise to India

India's Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association (EFTA) comprising Iceland, Liechtenstein, Norway, and Switzerland weaves in a $100-billion investment promise for the nation.

As per the fine print of the agreement signed in New Delhi on March 10, "EFTA states shall aim to increase foreign direct investment from investors of the EFTA States into India by $50 billion within 10 years from the entry into force of this Agreement and an additional $50 billion in the succeeding five years."

The EFTA states will also help generate one million jobs within 15 years in India from the time the agreement comes into force as a consequence of the commitment on foreign direct investment inflows.

However, this investment target by EFTA nations towards India is more of a promise rather than a binding commitment.

As clarified at the press conference held after the agreement was signed, the investments are expected to flow in from private firms and the commitment is not a governmental guarantee but rather a governmental initiative to nudge businesses towards investing in India.

"The government cannot commit for a private company, so the deal says that the EFTA states will aim to bring in Foreign Direct Investment (FDI) of $100 billion so the legal obligation on EFTA states is to facilitate promotions to realise the target," an Indian government official said.

In a bid to encourage businesses from EFTA nations to invest in India, a sub-committee on investment promotion and cooperation will be formed with government representatives from the five countries involved in the trade pact. The agreement also includes the establishment of a dedicated EFTA desk to assist investors who are investing, have invested, or are looking to invest.

This Investment Sub-Committee will periodically review the progress made towards the achievement of the shared objectives, which primarily has two aspects -- realisation of the investment target by EFTA nations, and India maintaining a nominal GDP growth rate of around 9.5 percent in US dollar terms in the next 15 years, which is in line with the South Asian nation's past growth rates.

As per the TEPA, the investment promised by EFTA states will hinge on India maintaining the above nominal GDP growth rate.

However, caveats have been included to help both parties involved in the deal.

The fine print of the trade pact shows that India may take remedial measures to rebalance the concessions given to the EFTA states if the pace of the FDI flowing in is not in line with the commitment made.

The official cited above confirmed the same. "If the investment does not come in, that can come in the last year as well, there is a provision to rebalance tariff concessions. Each party has the Independent right to bring down concession." To be sure, such remedial measures will be temporary.

The trade deal also includes a caveat that says in case of "occurrence of any unforeseen circumstances like global pandemic, war, geopolitical disruptions, financial crisis or sustained economic underperformance, which have had a material bearing on the progress to achieve the shared objectives, the parties shall adjust the shared objectives accordingly through an amendment".

This means that in such scenarios as stated above, the parties may relook at the nominal GDP growth rate needed from India to keep investments flowing in from EFTA as per the target laid out in the deal.

"There will be an effort to see if it is a war or a pandemic if India's growth slows down. Those factors will be considered in Government to Government consultations," the official explained.

Though the $100 billion promise will depend on EFTA nations being able to convince and steer private firms to invest in India, the South Asian nation is hopeful of this target being realised.

As Commerce Minister Piyush Goyal puts it, "The agreement will give a boost to Make in India and provide opportunities to the young and talented workforce...It is notable that for the first ever time in the history of foreign Trade Agreements (FTAs), a legal commitment is being made about promoting target-oriented investment and creation of jobs."