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There’s a paradigm shift in India’s trade agreements, and it’s for the better

The recently-signed trade agreements with Australia and the UAE reflect the government’s efforts to negotiate trade and economic agreements on an equal basis, where India’s interests are safeguarded 

April 12, 2022 / 12:01 PM IST
Representational Image (Reuters)

Representational Image (Reuters)

As India enters its 75th year of Independence, several changes have occurred altering India's viewpoint. The past eight years under Prime Minister Narendra Modi have seen a slew of ground-breaking reforms and development. Stimulated with economic reforms (such as Digital India), inclusive growth, foreign relations with a strong emphasis on soft power diplomacy (COVAX or vaccine maitreyi), and a neighbourhood policy, India has managed to carve out a prominent position in the global scene. Today, all major decisions affecting the global economy or geopolitics must take the stance held by India into account.

Taking this as a model, the Government of India has made a great effort in recent years and succeeded in negotiating trade and economic agreements on an equal basis, i.e., to build foreign ties that safeguard India’s national interest. It is reflected, in the recently-signed trade agreements with Australia (in April) and the United Arab Emirates (in December).

Such a significant step could, soon pave the way for similar trade-related agreements with countries such as the United Kingdom (Prime Minister Boris Johnson is planning to visit India in April to strengthen ties), Canada, and New Zealand, moving away from trade deals that primarily benefit advanced nations, and towards a scenario where India determines the parameters of the trade agreement as equal partners.

Wider Market Access

With both countries offering zero duty (96.4 percent by Australia and 90 percent by the UAE) on Indian exports, Indian domestic players will now have better market access. The previous trade agreements signed with Indonesia, Vietnam, or ASEAN resulted in trade distortions (for instance, India eliminated tariffs on 74 percent of lines; but Indonesia eliminated tariffs on only 50 percent of lines for India, and Vietnam on 69 percent).

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Trade and economic agreements with Australia and the UAE mark a significant shift in India's approach towards carrying out bilateral relations — with a main focus on ensuring national interest.

Further, this opportunity will open new doors to other Asian, African, and European markets. Such opportunities will be beneficial to the Indian domestic players. A virtuous growth cycle is expected, with a rise in demand for Indian products owing to greater market reach. Increased demand would accelerate domestic production, and, in turn, lead to job creation. Greater job opportunities would generate more income, which will lead to a higher standard of living.

Such measures are expected to provide a stimulus to the recently-introduced initiatives such as the Production-Linked Investment (PLI) scheme, which aims to boost domestic production and allied industries with an inpouring of FDI from these countries, thus, contributing to overall economic and social growth.

Concessions To Sensitive Sector

India has set explicit terms and conditions with Australia to protect its domestic players against global competitors, particularly in the dairy sector. This is the first time India has managed to negotiate such an agreement. In the past, India had walked out of the RCEP agreement due to the lack of protection guaranteed to the domestic sector.

Boost Engineering Products

With tariffs removed in this area, the export of these products to Australia projected to increase by 15 percent each year over the next five years (from $1.5 billion to $2.7 billion). In the case of the UAE, there has already been a 75 percent growth in December 2021-22, from $2.4 billion to $4.2 billion. According to estimates, by December 2022, this figure is expected to touch $5 billion.

What this implies is that it will give a boost to the MSME sector, which will translate to more job opportunities. This stimulus to the MSME sector will significantly contribute to the growth of the manufacturing sector, which has remained sluggish for the last few decades. It will also help the government accomplish its goal of increasing this sector's contribution to GDP from 16 percent to 20 percent by 2025, resulting in $1 trillion in Gross Value Added. This action furthers the realisation of goals outlined in initiatives like Start-up India and Stand-up India, as well as the overarching goal of inclusive growth.

A Shot In The Arm

Both countries would provide the requisite market access for India's expanding pharma industry (the market size of Australian pharmaceutical products is anticipated to be $12 billion) by relaxing regulatory processes, and including a separate annexe on pharmaceuticals. Furthermore, with access to these countries’ marketplaces, new economic pathways between Africa and Asia can flourish.

Indian exporters will have better accessibility to the UAE, and other much larger Arab and African markets. Alongside, those Indian units/medicines that have acquired FDA approval in the EU/Canada will profit from this change. In the aftermath of COVID-19, India's vaccine diplomacy demonstrated its potential and dependability. This step will further solidify India’s position in the international arena.

Strict Safeguard Mechanisms

Such terms in trade agreements inked with both nations are a break from India's previous position, in which arrangements were heavily-skewed in favour of the opposite party. Previous free trade agreements lacked appropriate protections to defend the indigenous industry against import surges. For example, since the signing of FTAs in 2009, the trade deficit with ASEAN countries has skyrocketed. As against this, for the first time, India has signed a deal that enforces ‘country of origin’, preventing items from other countries being bypassed through the FTA route. Apart from that, to safeguard the Indian domestic players, a separate exclusion list (for specific products) has been added.

Partnerships Through Minilaterals

Along with these bilateral agreements, efforts such as the SCRI, QUAD, and West QUAD will enhance India's ties with its neighbours. Amidst the growing concerns over China's expansionary moves in the Indian Ocean and the Indo-Pacific regions, the above mentioned minilateral initiatives are expected to have a significant impact on global geopolitics. A multi-sectoral approach will eventually boost India’s position as a net security provider, particularly in the Indian Ocean region.

With the enforcement of the trade agreements with Australia and the UAE, India has signalled a paradigm shift in negotiating with its counterparts. National interest and the welfare of its citizens shall form the prism through which India shall deepen its ties with other nations.

In conclusion, this move shall help realise the efforts the Modi-led government in making India a favourable destination for carrying out business, and make it the destination which fulfils the criteria for ease of doing business.

Nupur Bapuly is a policy analyst with a think tank in New Delhi. Views are personal, and do not represent the stand of this publication.

 



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Nupur Bapuly is a policy analyst with a think tank in New Delhi.
first published: Apr 12, 2022 11:38 am
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