FTA with EU: India's gain is neighbours` pain

Once implemented, the agreement is likely to result in a gain of Euro 1.4-17.7 billion to India's national income, in turn pushing up its economic growth rate.

FTA negotiations between the two sides started in April 2007. The EU accounts for 19 per cent of India's global trade. However, India's share in the economic bloc's total trade engagement is only 2 per cent.

The agreement will result in lower duties in India and the EU as well as enhanced foreign investment flows. As a consequence, other countries will lose out to Indian companies in doing business with European nations.

The draft Global Analysis Report, commissioned by the EU, took into account six different trade liberalisation scenarios. It has noted that benefits of the currently operational India-Sri Lanka FTA may be eroded when the India-EU agreement comes into effect.

Moreover, it will also adversely impact the GDP of other South Asian countries, least developed countries as well as the rest of the world to a varying extent.

In fact, aggregate GDP in the rest of the world is likely to take a hit in the range of Euro 2.13-18.94 billion because of the agreement, the study notes.

India stands to gain in terms of increased wages and greater exports. Noting the impact on the labour force, the study estimated that the agreement is likely to result in Indian workers changing jobs to other sectors to take benefit of increased wages. According to the report, 1,863 to 2,650 workers per 100,000 are likely to change their jobs.

Skilled workers are likely to see 1.02-1.66 per cent increase in remuneration, while for the non-skilled force it is likely to be in the range of 1.03 to 1.59 per cent.

Sectors in India which will gain most from the agreement include textiles, leather products, steel and non-ferrous metals, electronic equipment as well infotech. For example, the textile sector is likely to see 20-30 per cent growth in production output and employment, while exports are likely to rise by 30 to 40 per cent.

The report also takes notes of certain impacts on India. As a result of cheap EU imports, employment in transport equipment and machinery sector could drop by 3.6 to 6.7 per cent. Moreover, processed foods and beverages sector may also lay off employees due to decreased output resulting from cheap imports.

The report, which will be discussed in Delhi on June 23, was prepared by CENTAD, CUTS International and the Netherlands-based research firm ECORYS.