FTA’s and its significance

Context: India’s External Affairs Minister recently disapproved of free trade and globalisation.

  • On November 15,15 countries of the Asia-Pacific region signed the Regional Comprehensive Economic Partnership (RCEP) agreement while India refused not to sign RCEP.
What were the rational arguments given by the government to walk away from RCEP?
  • In the name of openness India has allowed subsidised products and unfair production advantages from abroad to prevail.
  • An economy as attractive as India allowed the framework to be set by others.
  • The effect of past free trade agreements has brought de-industrialisation in some sectors.
How good is India in emphasising trade openness?
  • India is much more open economy than it was three decades ago, yet, India continues to remain relatively closed when compared to other major economies.
  • According to the WTO, India’s applied most favoured nation import tariffs are 13.8%, which is the highest for any major economy.
  • According to the United Nations Conference on Trade and Development, on the import restrictiveness index, India figures in the ‘very restrictive’ category.
  • From 1995-2019, India has initiated anti-dumping measures 972 times (the highest in the world), to protect domestic industry.
Why FTAs are significant for Indian economy?
  • Economic recovery: With trade multilateralism at the World Trade Organisation (WTO) remaining sluggish, FTAs are the gateways for international trade.
  • Attract FDI: To be part of the global value chains, to enhance competitiveness, it is important to join FTAs.For example, India’s competitors such as the East Asian nations who have signed mega-FTAs are in a far superior position to be part of global value chains and attract foreign investment.
  • To reproduce the past success: Economic survey 2020 concluded that India has benefitted overall from FTAs signed so far. Blaming FTAs for deindustrialisation means being ignorant to the real problem of the Indian industry which is the lack of competitiveness and absence of structural reforms.
  • Globalisation not protectionism has benefitted India:
    • India has been one of the major beneficiaries of economic globalisation as per International Monetary Fund (IMF).
    • Post-1991, the Indian economy grew at a faster pace, ushering in an era of economic prosperity.
    • According to the economist and professor, Arvind Panagariya, poverty in rural and urban India, which stood at close to 40% in 2004-05, almost halved to about 20% by 2011-12.

The Prime Minister’s desire to make India a global destination for foreign investment while following trade protectionism as the government’s official policy will not be realistic.

why India opted out of RCEP? | 17th November, 2020

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