UPSC Relevance: GS II (International Relations), GS III (Indian Economy)
Context
- India has recently accelerated negotiations and signed FTAs with countries such as the UAE, Australia, EFTA, and concluded negotiations with the United Kingdom, while pursuing agreements with the European Union, Oman, and others.
- The editorial questions whether India’s FTA strategy adequately serves its long-term economic interests.
Background
- FTAs aim to reduce tariffs and boost trade, investment, and economic integration.
- India withdrew from RCEP (2019) over concerns related to trade deficits, market access, and domestic industry.
- The current strategy focuses on bilateral and minilateral FTAs instead of large regional trade blocs.
Key Highlights
- Excessive focus on the number of FTAs rather than their quality and implementation.
- Many FTAs have not significantly increased India’s exports due to non-tariff barriers and limited competitiveness.
- Domestic manufacturing and MSMEs require greater support to fully benefit from FTAs.
- Rules of Origin and trade diversion remain major concerns.
- Trade agreements should be aligned with India’s industrial and export strategy.
Challenges
- Persistent trade deficits with several FTA partners.
- Non-tariff barriers restricting Indian exports.
- Low competitiveness in manufacturing.
- Complex Rules of Origin leading to possible misuse.
- Limited awareness and utilisation of FTAs by MSMEs.
- Balancing market access with protection of sensitive sectors like agriculture.
Way Forward
- Negotiate balanced and evidence-based FTAs.
- Improve manufacturing competitiveness through ease of doing business and logistics reforms.
- Strengthen export infrastructure and trade facilitation.
- Ensure strict Rules of Origin to prevent trade diversion.
- Support MSMEs through awareness and capacity-building.
- Regularly review FTA outcomes and align them with Atmanirbhar Bharat and the Make in India initiative.
UPSC Mains Expected Question
Q. “Free Trade Agreements are effective only when complemented by strong domestic competitiveness.” Discuss India’s evolving FTA strategy and examine the challenges in maximising its benefits. (15 Marks)
