India & Free Trade Agreements

• 04 Jan 2022

For Prelims: Free Trade Agreement (FTA), countries with which India has FTAs, Regional Comprehensive Economic Partnership (RCEP), CECPA, SAFTA, APTA.

For Mains: Issues with the Free Trade Agreement (FTA) and opportunities for India, Various trade agreements of India and its role in the economic growth, India-Israel Relations, India’s Forign Trade Policy.

Why in News

Recently, the Commerce and Industry Ministry said that India is in dialogue with Israel for concluding a Free Trade Agreement (FTA).

• The announcement coincides with the 30^th anniversary of the establishment of diplomatic ties between the two countries.

Key Points

• Free Trade Agreement (FTA):
  • It is a pact between two or more nations to reduce barriers to imports and exports among them.
  • Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
  • The concept of free trade is the opposite of trade protectionism or economic isolationism.
• India and FTAs:
  • After India opted out of the Regional Comprehensive Economic Partnership (RCEP) in November 2019, the 15-member FTA grouping that includes Japan, China and Australia, FTAs went into cold storage for India.
  • But in May 2021 came the announcement that India-European Union talks, which had stalled in 2013, would be resumed.
    • Both sides are now engaged in internal preparations to take these various strands of work forward.
  • Bilateral free trade agreements of India are being negotiated with the United Arab Emirates, the United Kingdom, Australia and Canada.
  • The agreement with the UAE was ‘close to finalisation’ while the FTA with Australia was at a ‘very advanced stage.’
• Other Important Trade Agreements of India:
  • Comprehensive Economic Cooperation and Partnership Agreement (CECPA) between India and Mauritius.
  • South Asia Preferential Trading Agreement (SAPTA): It is for promoting trade amongst the member countries came into effect in 1995.
  • South Asian Free Trade Area (SAFTA): A Free Trade Agreement confined to goods, but excluding all services like information technology. Agreement was signed to reduce customs duties of all traded goods to zero by the year 2016.
  • Asia Pacific Trade Agreement (APTA):
    • Previously the Bangkok Agreement, it's a preferential tariff arrangement that aimed at promoting intra-regional trade through the exchange of mutually agreed concessions by member countries.
• Issues in India’s Foreign Trade Policy:
  • Poor Manufacturing Sector: In the recent period, manufacturing holds a share of 14% in India’s Gross Domestic Product (GDP).
    • For advanced and developed nations like Germany, the US, South Korea and Japan, the comparable figures are 19%, 11%, 25% and 21%, respectively.
    • For emerging and developing countries like China, Turkey, Indonesia, Russia, Brazil, the corresponding figures are 27%, 19%, 20%, 13%, 9%, respectively, and for low income countries the share is 8%.
  • Unfavourable FTA’s: In the past decade, India signed FTAs with the Association of Southeast Asian Nations (ASEAN), the Republic of Korea, Japan, and Malaysia.
    • However, it is largely believed that India’s trade partners have gained more from these agreements than India.
  • Protectionism: The Atmanirbhar Bharat campaign has exacerbated the view that India is increasingly becoming a protectionist closed market economy.

Indo-Israel Relations

• Historical Ties:
  • The strategic cooperation between the two countries began during the Sino-India War of 1962.
  • In 1965, Israel supplied M-58 160-mm mortar ammunition to India in the war against Pakistan.
  • It was one of the few countries that chose not to condemn India’s Pokhran nuclear tests in 1998.
• Economic:
  • India is Israel's third-largest trade partner in Asia and seventh largest globally.
  • Both countries currently have USD 4.14 billion of trade (April 2020 – February 2021), a figure that doesn't include the defence trade which has been increasing.
  • Israeli companies have invested in India in energy, renewable energy, telecom, real estate, water technologies, and are focusing on setting up Research & Development centres or production units in India.
  • The first recipients of grants from the Israel-India Industrial R&D and Technological Innovation Fund (I4F) were announced in July 2018, including companies working to better the lives of Indians and Israelis through efficient water use, improving communications infrastructure, solar energy use, and life-changing surgeries.
    • The fund aims to help Israeli entrepreneurs enter the Indian market.
• Defence:
  • Israel has been among the top four arms suppliers to India for almost two decades now, notching military sales worth around USD 1 billion every year.
  • The Indian armed forces have inducted a wide array of Israeli weapon systems over the years, which range from Phalcon AWACS (airborne warning and control systems) and Heron, Searcher-II and Harop drones to Barak anti-missile defence systems and Spyder quick-reaction anti-aircraft missile systems.
  • The acquisitions also include a host of Israeli missiles and precision-guided munitions, from Python and Derby air-to-air missiles to Crystal Maze and Spice-2000 bombs.
  • At the 15^th Joint Working Group (JWG) meeting on Bilateral Defence Cooperation between India and Israel, both countries agreed to form a Task Force to formulate a comprehensive Ten-Year Roadmap to identify new areas of cooperation.
• Agriculture:
  • India and Israel have signed “a three-year work program agreement” for development in agriculture cooperation.
• Covid-19 Response:
  • In 2020, an Israeli team arrived in India with a multi-pronged mission, codenamed Operation Breathing Space to work with Indian authorities on the Covid-19 response.

Way Forward

• Given that India is not party to any mega-trade deals, this would be an important part of a positive trade policy agenda.
• India’s trade policy framework must be supported by economic reforms that result in an open, competitive, and technologically innovative Indian economy.
• Nationalism, populism, nativism, and protectionism exploit people’s sense of being left behind and excluded from the system.
• That is why we need to focus on ensuring universal inclusion in the economic networks that allow individuals and families to achieve financial security and pursue opportunities for betterment.

Source: TH