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From Australia to UK, India seeks new FTAs with growth, jobs and China on its mind

A worker at a bottle factory near Ahmedabad, India. Photo: AFP

Days after finance ministers of the G20 nations agreed to push for smoother trade flows by not letting countries erect unnecessary trade barriers, India is already taking its first steps.

New Delhi is setting up a series of free-trade deals in a new-found momentum that comes nearly two years after it exited negotiations for the Regional Comprehensive Economic Partnership (RCEP), which involves 15 economies including Australia, Japan and Asean nations.

Rather than join multilateral agreements like the RCEP, India is looking to secure a string of bilateral trade pacts. It has restarted FTA negotiations with the European Union, which had stalled for 14 years, and is set to begin talks with Israel next month.

India last month also kicked off discussions with the United Arab Emirates and has signalled it is ready to start negotiations with neighbouring Bangladesh for a trade pact by early next year. This is in addition to the deal it hopes to conclude with Australia by next year, along with one with Britain.

The Indian government has said that even as talks are pending, it is likely to sign “early harvest agreements” – or preliminary trade agreements – as early as December with Australia, and by March with the United Kingdom.

Last week, after Indian Commerce Minister Piyush Goyal reportedly met at least 15 of his counterparts at the sidelines of the G20 meeting in Italy’s Sorrento, he said more may be in store. At least two other countries and a bloc of countries were interested in FTAs with India, he said, without naming them.

New Delhi has also announced plans to review its existing trade agreement with the Asean grouping.

The flurry of trade activity and eagerness to sign FTAs is a shift from New Delhi’s cautious approach towards trade pacts.

Since Prime Minister Narendra Modi’s government came to power in 2014, it has spent much time reviewing the country’s existing FTAs on the suspicion that India was not benefiting as much as the partner countries. This led to the administration withdrawing from RCEP negotiations in 2019.

Under Modi’s leadership, India has signed just one trade pact, with Mauritius, compared to the 11 FTAs secured by New Delhi under predecessor Manmohan Singh.

Indian workers on the production line at an air-conditioning plant in Neemrana. Photo: AFP

Why now?

According to Indian officials, plans for trade pacts have been in the works for some time, but factors such as geopolitical concerns and the Covid-19 pandemic have helped to spur interest.

DJ Narain, the Director-General of Media and Communications at the Indian Ministry of Commerce and Industry, said exports during the pandemic had boosted the country’s trade ambitions.

“India emerged as a reliable partner in the supply chain and we ensured that not a single supply chain was disrupted (from India),” Narain said. This sent a positive signal about the country’s manufacturing capabilities, he said.

Richard Rossow, senior adviser and the Wadhwani Chair in US-India Policy Studies at the Washington-based Center for Strategic and International Studies, said India’s rocky relationship with China was another “key consideration” in expanding trade partnerships.

“As firms look to expand beyond China, India has a unique opportunity to accelerate its own manufacturing sector. Trade deals are one method to take advantage of this opportunity,” he said.

The Indian government has been working to woo firms that might want to exit China. Modi recently called for a comprehensive plan to lure capital to India, while his government has rolled out schemes to entice foreign companies to set up production in the South Asian country.

This has gone hand in hand with the Modi government’s call for self-reliance by increasing domestic manufacturing and weaning itself off its dependence on imports from China.

According to data from India’s ministry of commerce, 16 per cent of imports between April and July this year came from China, amounting to some US$28 billion – more than double the imports from the second-ranked US.

Modi’s repeated calls for self-reliance, along with India’s decision to withdraw from the RCEP, had raised concerns New Delhi was becoming increasingly protectionist, and some experts believe the host of upcoming trade deals may be the government’s ways to ease some of these worries.

“I think there was a realisation that India cannot be isolated when it comes to bilateral and regional agreements and that we need to be part of the global value chains,” said Dr Saon Ray, economist and professor at the Indian Council for Research on International Economic Relations, a think tank in New Delhi.

“In some ways, these deals are a signal to the world that India might not have signed the RCEP but that does not mean it won’t look at other trade agreements,” she added.

According to Ray, the RCEP withdrawal may have paved the way for some of the FTAs that New Delhi is now negotiating.

“For instance, the Australia-India FTA was kept on hold because of the RCEP; this was also one of the reasons why the New Zealand-India FTA was put on hold,” she said. “But the moment India decided to not be part of the RCEP, these agreements became very important.”

Textile workers at a factory on the outskirts of Mumbai. Photo: AFP

Meanwhile, as New Delhi seeks bilateral trade deals, jobs and growth will be on its mind.

While it has fallen since last year, the country’s unemployment rate continues to hover around the 7 per cent mark. The International Monetary Fund on Monday cut India’s potential growth rate to 6 per cent due to the impact the Covid-19 pandemic has had on investments and the labour market.

As a result, exports may give the Indian economy a boost. In August, Modi announced his government had targeted an ambitious US$400 billion in exports by the end of March next year, and urged exporters to seize the opportunities created by the pandemic to explore new destinations.

The Indian commerce ministry’s foreign trade data revealed that by the end of September, the country had already exported US$198 billion worth of products, a 24 per cent increase as compared to the exports in the same period in 2019.