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HOW INDIA IS RESETTING ITS TIES WITH THE WORLD

Why in news?

India’s shift in trade strategy is evident from its decision to opt out of RCEP and the increasing engagement with the US and EU.

Details

  • India announced its exit from the China-led Regional Comprehensive Economic Partnership (RCEP) deal at the Bangkok summit on 4 November.
  • While countries like Japan are still trying to woo India back to the RCEP fold, India has now signaled a shift in strategy when it comes to signing free trade agreements.
  • It is now showing readiness to renew negotiations on the long-pending free trade agreement (FTA) with the European Union as well as with Britain after the impending Brexit deal is signed.
  • India is currently negotiating a limited trade package with the US after which both sides may sit down for a comprehensive FTA negotiation.

India’s FTAs

  • Negotiations for the proposed India-EU FTA started in 2007 but talks were suspended in 2013 due to differences.
  • FTAs with EU and the US have their inherent advantages for Indian exporters.
  • India has lost preferential market access to both economic regions, which has adversely impacted India’s labour-intensive textile exports.
  • In June, 2019, the US also withdrew duty-free benefits to India’s exports, further denting India’s competitiveness in certain product lines.
TOP 10 Destinations with FTA
TOP 10 Destinations with FTA

  • Most of India’s existing FTAs are poorly negotiated and remain under-utilized.
  • For example, in Indonesia, the average tariff for India in non-agricultural goods was 5.5% in 2012, while that for China, it was 2.1%, as a result of the China-Asean FTA.
  • This could be because India has been a reluctant globalizer and prefers to sign defensive trade deals that do not hurt domestic industry much, even though it means little additional market access in the partner country.

Way forward

  • A nation-wide, cross-sectoral campaign to increase awareness about existing FTAs and the ways in which specific provisions of FTAs can be leveraged by MSMEs would be critical.
  • Greater information dissemination about compliance issues are all important for companies to truly be able to take advantage of FTAs
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December 2022
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