Statsguru: Six charts show India is rapidly on FTA-signing spree

The Australian Parliament ratified the ECTA with India on November 22, as a stepping stone to a more ambitious CECA

India has been moving rapidly on trade agreements after a decade of shunning new deals. India signed agreements at the rate of around one per year between 2000 and 2011, and none at all in the 10 years since. The Australian Parliament ratified the Economic Cooperation and Trade Agreement (ECTA) with India on November 22, as a stepping stone to a more ambitious Comprehensive Economic Cooperation Agreement (CECA). India signed a Comprehensive Economic Partnership Agreement (CEPA) with the United Arab Emirates (UAE) earlier in the year.

 There are negotiations ongoing with others including the United Kingdom, European Union, Canada and the Gulf Cooperation Council (GCC). There has been some variation in the outcome of trade agreements over time. While some have been a boost for exports, others have actually resulted in a bigger import boost (charts 1, 2). 

The overall effect has been positive, according to an Economic Survey analysis. There was a 0.7 per cent faster rise in exports of manufactured goods compared to imports. The gap was wider at 2.3 per cent for merchandise trade overall (charts 3, 4), according to the government’s analysis. India’s utilisation of free trade agreements (FTAs) is low because of “misaligned costs and benefits and high cost of compliance”, according to an independent April 2022 India Economics note from global financial services major Morgan Stanley authored by economists Upasana Chachra and Bani Gambhir.

New agreements should focus on markets with high export potential for India’s goods, suggested the duo. Higher commodity and food prices helped raise India’s share of global exports in recent years. But India is still likely to take years to catch up with other large economies at current rates of growth (chart 5). 

Commodity prices have been falling of late, and a global slowdown may act as a headwind, noted a September 2022 BofA Securities Equity Strategy report authored by a team of research analysts including Amish Shah and Ankur Deore. The latest trade agreements with the UAE and Australia may help. The test may lie in their ability to reverse the recent trends of worsening trade balance with the two countries. The gap has only widened since the pandemic (chart 6).