Team Blitz India
NEW DELHI: The India-UK Free Trade Agreement (FTA) negotiations are at a critical juncture, with hopes of a conclusion very soon when UK Prime Minister Rishi Sunak visits India.
Despite the air of anticipation, some views, however, point out that the agreement will yield only limited benefits for India mainly because many of its exports to the UK already enjoy low or zero tariffs.
FTAs lower the import duty, but if it is already zero, FTAs offer no benefit, according to the Global Trade Research Initiative (GTRI). Its report added that this is the biggest reason for Indian firms not using FTAs for exports.
“India’s weak export performance with FTA partners should not surprise us. It happened because of high tariffs in India and significantly lower tariffs in its FTA partners. We could have anticipated the results even before the signing of the Agreements,” the GTRI said.
Performance analysis
It analysed the trade performance of India’s FTAs with ASEAN, South Korea, and Japan, signed in 2010- 2011 and compared trade between 2007-09 (i.e., pre-FTA) and 2019-21. The results show two major trends.
One, India’s cumulative merchandise trade deficit with these three FTA partners increased at much higher rate than India’s global trade deficit: ASEAN – 201.5 per cent, South Korea – 142.5 per cent, and Japan – 120.6 per cent.
“The deficit with the world grew by 43.1 per cent. The period under consideration is the pre-FTA era (2007-09) and current trade (2019- 21), it concluded.
The report argued that India’s exports post-FTA may gain little as its prospective partner countries’ MFN duties are low, and most imports happen at zero or low MFN duties.
The reverse will not be true, it held, adding that India’s new FTA partners will gain price advantage from duty elimination by India as India’s MFN duties are higher.
