Free-trade...exports will take a hit in 2023

- Illustration of India being a wider market, benefiting the counterparty in trade agreements

After successfully signing Free Trade Agreements (FTAs) with the UAE and Australia in 2022, India is now looking forward to an FTA with the United Kingdom (UK) in 2023. During the recent meeting between British Commerce and Industry Minister and his Indian counterpart Piyush Goyal, these two leaders decided to remove the differences on the FTA issue keeping in mind the sensitivities of both the countries and agreed to conclude the negotiations on the FTA as soon as possible. A trade agreement with any country provides an easy market for Indian goods in that country, so the respective country also gets a market for their goods in India. As most of the world's countries are smaller in terms of population compared to India and India is set to overtake China as the most populous country in 2023, trade deals with India are likely to benefit the other side.

Now that India has become hasty in entering into foreign trade agreements, it is not out of place to look at how much we have benefited or lost from the countries with which we have signed FTAs ​​in the past. Till date India has signed free trade agreements with 13 countries. The countries with which India has trade agreements include Japan, South Korea and the Association of Southeast Asian Nations (ASEAN). Which is a group of ten countries.

In the first six months of the current financial year, Southeast Asian countries have outgrown our exports and imports. The figure of import growth from these ten countries has been 56.33 percent while exports have increased by only 11.61 percent. India's exports to Japan have declined by five percent, while imports from there have increased by around 11 percent. A similar picture exists in trade with South Korea. Import growth has been higher than exports. India signed the first free trade agreement in 2010. A recent report revealed that India's trade deficit with these countries has increased sharply in the last decade after the period of trade agreements.

With the reduction in import duties in India after the FTA, the door was opened for exporters from FTA partner countries to sell goods in India at cheaper rates than their competitors, but Indian companies could not benefit significantly as the level of duties in countries with which India has agreements is was already at very low or zero levels. Thus India has no chance to compete with its rival countries. Due to this, India's imports have started to increase and exports have not grown significantly, resulting in a steady increase in the trade deficit with these countries.

Poor utilization of FTAs ​​is also our limitation. Exporters are alleging that the process of obtaining the Certificate of Origin is particularly tedious. After a period of almost 12 years, India has signed FTAs ​​with United Arab Emirates (UAE) and Australia in the year 2022. Now in the new year India is eager to sign agreements with Canada and European countries in addition to the UK. These countries are India's major export markets. Due to Corona, displeasure towards China has spread in the countries of the world and these countries have started turning towards India as an alternative to China for trade. Taking advantage of this opportunity, India is also eager to make an agreement and by 2030, the figure of export of goods and services has been rushed to reach two trillion dollars.

India's share of $421 billion in the $22 trillion global export market is less than two percent. Keeping this fact in mind, India will have to be aggressive in reaping the benefits of FTA. The same haste in signing trade agreements with Japan, Asia and South Korea should be done with European countries where there is more opportunity to increase exports. In the agreement with Japan, Japan has implemented sourcing standards that are difficult to comply with, and as a result, India is not able to access the apparel export market in Japan as much as it would like. On the one hand, while India is lagging behind in expanding its export market, the country's exports have declined in the current financial year due to measures to impose restrictions on exports of products like rice, wheat, and steel. After growing at a rate of 20 to 22 percent in the January-June period of 2022, the export of goods slowed down in the September quarter and in October it recorded a year-on-year decline of 16.80 percent.