As trade gap with UAE, ASEAN widens, India pauses talks with others

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Last Updated22/10/2024

After a series of free trade agreements (FTAs) that have proved more beneficial to partner countries, India is adopting a more cautious negotiating strategy, temporarily pausing talks for trade pacts.

India is recalibrating its strategy for negotiating Free Trade Agreements (FTAs) after several recent deals resulted in trade imbalances, with imports from partner countries far outpacing exports. The Commerce Ministry is developing a Standard Operating Procedure (SOP) to address inconsistencies and streamline the process for future agreements, with a particular focus on larger markets and strategic partners.

India’s recent trade agreements, such as the UAE pact (2022) and the ASEAN agreement (2010), have led to significant surges in imports, while exports have lagged. For instance, imports from the UAE surged by 49.22% in September 2024 compared to the previous year, whereas exports increased by only 23.75%.
This trend, coupled with rising concerns over rules of origin violations, has led to a reassessment of trade deals.
The trade gap with the ASEAN region widened sharply, with the deficit increasing by 70% in FY23 compared to FY22.
The Australia FTA, signed in 2022, has not yet yielded the expected export benefits.

In addition to trade imbalances, concerns about investment outflows from the country due to these FTAs have surfaced. Officials have pointed out that some agreements have opened up India’s markets disproportionately without yielding commensurate returns in terms of investment or exports.

The Ministry of Commerce is working on a new SOP that aims to standardize trade negotiations, addressing human resource challenges, forming negotiation teams, and ensuring subject matter expertise. This SOP will also incorporate contributions from the Ministry of External Affairs and the Department of Economic Affairs, along with consultancy input from the Boston Consulting Group.

Modern Chapters: Includes trade provisions on labour and environment.
Clear Trade-Offs: A focus on understanding the bottom line for each party.
Twinning Agreements: Encourages cooperation between state governments in India and provincial governments in other countries.

Trade negotiations with smaller countries such as Oman, Peru, and Chile have been paused. Officials expressed concerns that these deals have disproportionately benefited partner countries without yielding equivalent returns for India. India is now focusing on larger markets such as the European Union and the UK, where it anticipates greater export benefits.

India is conducting a review of the ASEAN FTA due to its rising trade deficit with the region. The deal, signed during the UPA era, has been criticized for tariff asymmetries and for contributing to increased imports, especially post-Covid-19. ASEAN’s participation in the China-led RCEP has further exacerbated these concerns. India had exited RCEP negotiations in 2019 due to fears of a flood of imports from China.

While India continues to pursue trade agreements, the focus is now shifting towards maximizing export gains and protecting domestic industries from unfair competition. By adopting a more cautious approach and strengthening its negotiating framework, India aims to ensure that future FTAs deliver balanced benefits, particularly in partnerships with larger economies and geopolitically significant nations.