Currently, compared to other major economic players, India is out of any major trade deal. China has the Regional Comprehensive Economic Partnership (RCEP), the United States anchors the North American Free Trade Agreement (NAFTA), and then there’s the EU.
India has withdrawn from RCEP for the time being, given the distorted experience under the India-Asean FTA (Association of Southeast Asian Nations) and the worsening security dynamics with China. Much of that leaves us with North America, the EU, West Asia, and Australia.
India has, so far, prioritized pursuing eight FTAs, of which Britain, Australia, the United Arab Emirates and Israel are moving forward. Negotiations have resumed with the EU, while the US has yet to adjust its national approach to trade in light of political sensitivities on the subject. At first glance, there is progress.
But it takes a lot more for India to make some of these deals and not let them go as it has in the past.
To begin with, India must accept that the nature of trade agreements has shifted from tariffs and duties to quality and standards.
This includes social, political and environmental standards. Previously, trade agreements largely included chapters on goods, services, investment, dispute settlement, etc. Today, next-generation FTAs will need to address digital technologies, e-commerce, intellectual property rights (IPRs), environmental sustainability, labor, gender and such issues.
Moreover, it is true that these topics gain in relevance when dealing with the West. But, for India to position itself as a natural destination for Western value chains, it must consider rethinking its policy approach on some of the issues that inform next-generation FTAs.
China’s belligerence with India has forced New Delhi to embark on a complex decoupling process. Last month, after a long hiatus, the United States, with a total trade of $ 11.46 billion (Rs 85,234 crore) with India, topped China at $ 10.48 billion (Rs 77 945 crore). More importantly, in the case of China, most of the trade was made up of imports by India amounting to around $ 8.76 billion (Rs.65,152 crore), while the distribution was more fair with the United States. In fact, Indian exports were around $ 7.23 billion (Rs 53,773 crore), with imports of $ 4.2 billion (Rs 31,237 crore).
Clearly, trade with the United States provides greater strategic and economic stability. But India will need to diversify to maintain this balance over the long term. The biggest problem is that 70% of India’s trade is in goods which account for 30% of world trade. Which means India needs to diversify into areas like electronics, high tech manufacturing, green tech, renewable energy, etc. Only then will it be able to exploit its trading partners more effectively.
What works for India is a favorable global political climate that is ready to invest in a stronger Indian economic profile. But the problem is, according to some estimates, around 80% of foreign direct investment (FDI) entering India is for manufacturing and selling in the domestic market, not for other exports. The concept of manufacturing in India for the world, one of the key pillars of Aatmanirbhar Bharat’s policy framework, has yet to be embraced by companies trying to outsource their supply chains.
So, while looking for a meeting point to adopt the next generation FTAs, it is important to get rid of some old habits in line with the quality trends that India must now adopt. It may be interesting to consider that even if India is not part of any trade agreement, it could, in its own interest, unilaterally follow the best practices of some of these groupings.
In other words, it is in India’s interest to lower its tariffs and tariffs to more acceptable and competitive levels. Countless studies have shown that higher fees haven’t paid off much, either in terms of revenue or high-end product development. One of the reasons India has always found easier political acceptability with the West is that even in times of conflict, such as the Pokhran nuclear tests in 1998, Delhi, unlike Beijing, has always been assured to meet global standards as a democracy, even if he never signed them for other reasons.
When it comes to economic conversation, India has always had problems with the West. In fact, post-reform India has found it easier to look east. But now he must reopen the conversation with the West about the strength of his democratic policy. There is no reason for India to dodge questions of democracy. Global politics have also evolved towards the acceptance of a broader democratic framework, in large part because of the security threat posed today by undemocratic entities.
Embrace the new order
In many ways, these issues that were once seen as insurmountable non-tariff barriers may well be opportunities to jump into a new growth model. Either way, these are conversations India must have and conclude, as progress here would also set it apart from China as a politically acceptable and reliable economic partner.
The emerging fault lines of the conflict convey a great sense of insecurity. Therefore, weaving a network of new progressive economic relations is not only desirable, but also a national and strategic security imperative that deserves urgent attention,