March 19, 2024
📰 FEATURE STORY
Is the EFTA trade deal good for India?
An interesting aspect of the current Indian government is its emphasis on self-sufficiency in economic development. You could argue it was somewhat distancing itself from free market ideologies. There’s definitely a political angle to it with schemes like Make in India. It’s made industries powerful here at home but not globally competitive.
But there has been a bit of a policy shift toward trade deals. The government has described them as pro-people, pro-business, and pro-growth. The latest one is with the European Free Trade Association (EFTA), a group of some European countries. While the deal is most certainly good for them, does it hold any promise for India?
Context
The EFTA is made up of Iceland, Liechtenstein, Norway and Switzerland. The deal’s headline is that the EFTA countries will invest $100 billion in India over the next 15 years in exchange for lower tariffs on their pharmaceutical and chemical products, minerals, and several consumer goods.
The EFTA deal was a long time coming. Discussions began in 2008 but stalled for a long time. 21 rounds of talks, and 16 years later, it was finalised. Here’s how it’s structured. The EFTA bloc will look to increase Foreign Direct Investment (FDI) from investors of EFTA states in India by $50 billion within a decade of the agreement taking effect and an additional $50 billion in the following five years.
Let’s see some data points on trade. Per government data, India’s exports to the EFTA countries were $1.87 billion from January to December 2023. Imports were over $20.45 billion. Switzerland alone accounted for over $19 billion due to gold purchases. The imports are mainly silver, coal, pharmaceuticals, medical items, and scientific equipment. The exports are iron & steel, gold, sports goods, bulk drugs, etc.
This is the third major trade deal signed by the Modi government since 2022. There are already bilateral agreements in place with the UAE and Australia. India is also currently negotiating trade deals with the UK and European Union (EU) and smaller countries like Peru and Oman.
These represent an interesting policy shift, as stated earlier. India has long feared the negative impact of cheap imports, particularly for the agricultural sector, which employs millions. Looking at it politically, people employed in globally uncompetitive industries, like farmers and those in manufacturing, are constituencies that politicians can’t anger. It’s probably why the government didn’t sign on to the Regional Comprehensive Economic Partnership in 2020.
Now, there’s messaging that goes along with the deals being signed to sell it to those sceptical about foreign imports affecting local businesses. Combined with the deals with the UAE and Australia, the government hopes that these will boost exports and attract investments in finance, railways, and automobiles. Will it ultimately be good for India?
VIEW: A great deal that holds promise
The fact that the EFTA deal comes on the heels of the UAE and Australia deals is a welcome sign that the government is more open to trade deals and not reliant on purely protectionist tendencies. The services sector forms an important part of the deal. It would help stimulate service exports in sectors like Information Technology and accelerate the movement of skilled personnel.
The government has set a $2 trillion target for exports by 2030. This requires policy action in many areas, the most important being lowering tariffs and entering into more expansive free trade agreements. There’s good news on that front, especially if you’re a fan of high-quality Swiss products like watches and chocolates. India will phase out customs duties on these goods over time. The same goes for wines, processed foods, Mediterranean fruits, coffee, oils, etc.
For the economy as a whole, the deal is expected to generate over a million jobs in the next 15 years. Producers and manufacturers will have access to machinery at lower costs. An interesting aspect of the deal is the inclusion of labour, human rights, environment, and gender. The deal sets a good precedent when dealing with developed nations that have greater market access in a high tariff country like India and have investments to offer.
COUNTERVIEW: Limited scope and unknowns
There’s no doubt the EFTA deal’s scope is massive. But it rides on vague investment promises with minimal gains on trade for India. The $100 billion investment flow has a nice ring to it. However, it’s predicated on India’s GDP growing at a nominal rate of 9.5% over 15 years. That’s a tall order. While India has promised to reduce tariffs on several goods, it’ll only happen in phases. But, what merits observation is whether India’s trade deficit with EFTA will expand further.
On the domestic front, India faces its fair share of export challenges. Over the past three years, agricultural exports have been declining. The agri-export growth rate was only 6% in 2022-23 compared to 17% in 2020-21. Questions remain on how legal arrangements will translate into private investments. In particular, the deal excludes pension and wealth funds. This could affect investor confidence, given the capital these funds hold.
Another thing to keep an eye on is Intellectual Property provisions. India is regarded as the world’s pharmacy and exports medicines to several countries. The Covid-19 pandemic was an example of India’s capabilities on that front. India represents less than 1% of total Swiss pharmaceutical product exports. When there is generic competition in India, prices of newer medicines drop by 90%. That’s good news for those who need them the most.
Reference Links:
- 16 years, 21 rounds of talks: India-EFTA free trade agreement a reality – Business Standard
- India signs trade agreement with EFTA: What is the significance of the deal? – The Indian Express
- Why India Just Inked a New Free Trade Deal – Foreign Policy
- India-EFTA trade pact indicates potential for larger agreements with Europe – Deccan Herald
- Cheaper Swiss watches, chocolates: How India-EFTA trade pact will benefit Indians – Times of India
- India-EFTA trade agreement: Prospects and challenges – Trade Promotion Council of India
- Millions of peoples’ access to affordable medicines at risk if India-EFTA trade deal finalised as is – MFS Access
What is your opinion on this?
a) The EFTA trade deal is good for India.
b) The EFTA trade deal is bad for India.
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