India failed to benefit from free trade agreements with Asean: Report

The report, prepared by PHD Chamber of Commerce and Industry, said India’s trade had increased since it entered into FTAs with Asean

By Kundan Pandey
Published: Wednesday 13 November 2019

India failed to benefit from free trade agreements (FTAs) with the Association of South East Asian Nations (Asean), a recent report has stated.

In fact, India’s trade deficit had increased ever since the country entered into FTAs with Asean, the report, prepared by the PHD Chamber of Commerce and Industry, and released on November 11, 2019, said.

The findings are significant as Niti Aayog’s first chairman, Arvind Panagariya had recently remarked that India should not stay out of the Regional Comprehensive Economic Partnership (RCEP).

Asean compromises 10 countries including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.

India had signed an FTA in goods with the regional bloc in 2009, known as the Asean–India Free Trade Agreement (AIFTA). In 2014, an FTA in services was also included.

India had also signed the Comprehensive Economic Cooperation Agreement with various countries of Asean.

According to the PHD Chamber report, India’s imports from Asean countries increased sharply in comparison to its exports to them after signing these agreements.

India’s exports to Asean countries amounted to $23 billion in 2010, which increased to $36 billion in 2018, with a compound annual growth rate of five per cent. At the same time, India’s imports from these countries increased from $30 billion in 2010 to $57 billion, a growth of eight per cent.

On the other hand, India’s imports and exports with Asean countries increased 22 per cent, from 2001 to 2009. Its exports increased from $3 billion to $18 billion while imports increased from $4 billion to $24 billion.

India’s past experience with FTAs has not been encouraging, Durgesh K Rai, fellow at think tank Indian Council for Research on International Economic Relations, said.

He added that India had recorded a trade deficit in all major trade agreements other than the South Asia Free Trade Agreement (SAFTA).

SAFTA was signed in 2006 between Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka. Since its inception, India’s exports to these countries increased from $4 billion to $21 billion.

In contrast, India has been at the receiving end of the Asean Comprehensive Economic Cooperation Agreement, which it joined in 2010. India’s total trade deficit with Asean increased from $8 billion in 2009-10 to about $22 billion in 2018-19.

The share of Asean in India’s total trade deficit increased from about 7 per cent to 12 per cent during the same period. The country has also bled in its Comprehensive Economic Partnership Agreement with South Korea, where its deficit increased from $5 billion in 2009-10 to $12 billion 2018-19. Similar is the story with the India-Japan FTA named CEPA, which became effective from August 1, 2011.

Among the 15 RCEP countries, India faces trade deficits with all except Laos, Cambodia, Myanmar and the Philippines. China, the biggest fear for India, accounts for 60 per cent of the total deficit, according to a policy paper published by DBS group, a Singapore-based multinational banking and financial corporation.

The paper, published on October 10, shows that after the 2010 FTA with Asean countries, India’s imports from the bloc rose by 79 per cent while exports grew by just 39 per cent.

The paper makes another interesting observation: India’s net exports to countries without a trade agreement were only marginally lower than its net exports to countries with FTAs. In contrast, the imports from countries with trade agreements were substantially higher, pushing India into a trade deficit.

Most experts Down To Earth spoke to, agreed that India needed to work on its manufacturing sector to benefit from any FTA.

“India should not consider entering into FTAs without preparing the agriculture and manufacturing sectors adequately,” Biswajit Dhar, professor at Jawaharlal Nehru University, said.

“All successful countries, especially our East Asian neighbours, have turned their enterprises into global players. These countries adopted the right mix of policies that have paid rich dividends. We all know how China has been promoting its domestic industry for the past several decades,” he added.

An increasing number of countries were now focused on making their domestic economies resilient by taking a step back from process of globalisation, Dhar noted.  

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