Scenario of Free Trade in India:
Free Trade Agreements (FTAs) are agreements between
countries to reduce or remove barriers to trade which includes the tariff barriers,
i.e., taxes, and the non-tariff ones, i.e., regulatory laws. Free trade is
promoted by institutions like the World Trade Organization (WTO) and thus, in an
emerging superpower such as India, FTAs deserve focus.
Free Trade Agreement:
The “Look East Policy” that was initiated in the
country with the beginning of economic reforms grew to an “Act East Policy” with
changes in government and the subsequent reforms in the political scenario of
the country. The ASEAN stands for The Association of Southeast Asian Nations.
Trade relations between India and the Southeast Asian countries go back many years.
The creation of the Indian-ASEAN trade agreement dates back to the year 2003
and the enactment of the Free Trade Agreement in Goods occurred in the year
2010. Subsequently, the trade relations between the nations grew more rapidly
exchange of goods and investments increased.
The ASEAN-India Free Trade Agreement has been
completely enacted on 1st July 2015 with entry into the services and
investments sector. India stands to gain from this perspective since the services
sector in India has always been strong. ASEAN group is India’s fourth largest trading
partner accounting for 10.2% of India’s total trade and 12.5% of the country’s
investments. The ASEAN countries mostly have manufacturing based economies
which perfectly complement the service based economy prevalent in India.
However, there are some major challenges in this FTA.
The Indo-ASEAN FTA has benefitted the Southeast Asian countries more than it
has benefitted India. The domestic manufacturers of the country are struggling
to keep up with the cheaper goods from various other countries such as rubber
from Malaysia and palm oil from Mexico. Further, the agreement in services has
not reaped many benefits for India since some member nations have not ratified
their FTA in services (e.g.: Philippines). This has led to a trade deficit with
the ASEAN group which has hurt India fiscally.
Comprehensive Economic Partnership:
This comprises of 10 members of the ASEAN group and 6
other countries which include South Korea, China, Japan, India, New Zealand and
Australia. If this agreement were to be negotiated and enforced it would cover
a population of 3 billion, and account for as much as 40% of the world’s trade.
The agreement aims at tariff liberalization so as to promote easier access to
The advantages that may result from this FTA include
benefits in terms of the FTA for services which is one of the most developed
sectors in India. Also, since India has ASEAN agreement in place with countries
such as Japan and South Korea, this FTA will complement the existing agreements
of the country. However, there are also some challenges arising from this FTA.
If Japan pressurizes for the agreement in intellectual property rights, India
will lose its position as a pharmaceutical hub and medicines will become
expensive in the country. Also, since the agricultural sector in India is nowhere
as developed as the other countries, it will suffer a setback due to flooding
in of cheaper goods from other countries. This will also be a major hit on the
Make in India programme.
Asian Free Trade Agreement:
Abbreviated as SAFTA, this trade agreement was aimed
at improving the relations between the SAARC nations, i.e., Nepal, Bhutan,
Afghanistan, India, Pakistan, Bangladesh, Maldives and Sri Lanka. This FTA first
began as a preferential trade agreement in 1993 and finally became a Free Trade
Agreement which was enacted in 2006. In order to improve the economic and trade
relations amongst the member nations, although this FTA was signed nearly eleven
years ago, this FTA has not contributed to any significant trade growth in the
Many goods and services have been included in the “sensitive
list” and thus are immune to tariff concession since the member nations are afraid
of losing out on domestic trade. This also hurts the trade prospects due to