Free Trade Agreements – India’s way forward to growth

Free Trade Agreements – India’s way forward to growth


Free Trade Agreements – India’s way forward to growth


Col. Satish Singh Lalotra

‘Free trade or free market means the sovereignty of the consumer’—-Faustino Ballve.

In a world globalized by fewer restrictions on travel, faster means of communications and a greater deal of interactions between people to people, government to government and nation to nation, the paradigms of progress in terms of human advancements in material possessions too has changed drastically. With the world having shrunk in terms of information, movements etc as mentioned above inter dependability of economies of countries dictating regional stability and security too has seen a shift.

These have necessitated imperatives of staying afloat in an increasingly unstable world wrought by regional wars, so that countries have started realigning themselves in terms of their domestic as well as international relations. India too did realign itself from its socialistic underpinnings when in 1991 under the able guidance of its FM, Manmohan Singh the nation steered away from its entrenched position of “license raj’ to that of a free market economy foisted upon it by vicissitudes of world politics as well as changed economic scenario at domestic front.

The latest Russo-Ukrainian war and its fallout on other countries in terms of their economy, foreign relations etc has once again emphasized the role of forging various trade agreements in other parts of the world to insulate itself from such sudden happenings having the potential to rock the boat of economies of world’s nation states. India is no exception to such arrangements.

Our country in particular has been thoroughly pitchforked into an unenviable position, a doing not of its own making since both warring nations have strong friendly relations with us. Be that as it may, as stated earlier countries have to jockey themselves to come on top of such upheavals. One such way out is to go in for a FTA or free trade agreement either multilateral or bilateral with other countries with an equal share of understanding in terms of ideology and tthinking

A free trade agreement or FTA as it is popularly known is an agreement according to international law to form a ‘Free trade area” between the cooperating states. FTAs, a form of trade pacts determine the tariffs and duties that countries impose on imports and exports with the goal of reducing or eliminating trade barriers, thus encouraging international trade. Under a ‘Free trade policy’ goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies.

After India opted out of ‘Regional comprehensive economic partnership’ (RCEP) in Nov 2019 the 15 member FTA grouping that includes Japan, China and Australia went into a cold storage for India. But in May 2021 came the announcement that Indo-European union talks which had stalled in 2013 would be resumed. Therefore both sides are now engaged for the last one year or so to take things forward. As a template to focus on the positives that are a fall out of such free trade agreements, I have taken the recently concluded ‘IND AUS ECTA’ or India -Australia free trade agreement between the two countries and tried to analyze the way forward for us in world of business.

The latest to climb the bandwagon of FTA is the above mentioned ‘INDAUS ECTA’ (India-Australia economic cooperation and trade agreement) for short signed between our minister for commerce, industries and consumer affairs, Piyush Goyal and Dan Tehan the Australian minister for trade, tourism and environment. As a beginner, Australia and India share many things in common.

Both are democratic countries that support the rule of law and both love the game of cricket. Australia has given the world late Shane Warne and India has given Sachin Tendulkar. The respect shown by Indian cricket fans to late Shane Warne and by Australians towards Sachin Tendulkar underscores the deep affection we both countries share for each other. It is a relationship that is growing stronger by the day with common values and goals for a peaceful and secure Indo-Pacific region.

India and Australia both realize and recognize that free trade drives economic growth, improves living conditions and builds trust and respect between partners. Coming to the land mark FTA between India and Australia i.e ‘INDAUS ECTA’ for short, this historic deal will eliminate tariffs in more than 85% of Australian goods entering India and almost all of Indian goods entering Australia upon entry. The above means Australian exports to India of sheep meat, wool, coal, Alumina, metallic ores including manganese, copper, Nickel, and critical minerals will be free of any trade tariffs or barriers as such. Likewise for India exports to Australia of Jewelry, bed linen, cosmetics, clothing, paints, and automotive parts to name a few will be in for a bonanza under the just signed trade pact. In effect, Australia will get better access to the fast and rapidly growing Indian markets while Indian companies will enjoy cheap supply of energy, raw materials and intermediate goods which will make them more competitive in the global market.

As stated in my opening quote of this article ‘Free trade means sovereignty of the consumers’ hence this ‘INDAUS ECTA’ will help create an entire gamut of new ecosystem wherein customer or the consumer will be the king. This epic trade deal will help create hundreds of thousands of jobs in labour intensive sectors like textiles, leather, and pharma industry as the huge Australian market gives best access to Indian products.

In addition the agreement of INAUS ECTA does cater for various red lines such as Indian’s concerns about its agricultural and dairy products. As per this trade deal it will be much easier for our brilliant minds to forge and work together keeping the recognition of professional qualifications and go forward accordingly in furtherance of their goals.

This deal looks into future with an assurance that Australian service providers in 31 of the country’s most important service sectors and sub-sectors including higher education and adult education, business services (tax, architecture and urban planning ), insurance, banking, hospital, tourism and travel services always receive best treatment and remain competitive compared to India’s future trading partners. Australia on its part will also eliminate the double taxation on Indian IT firms.

Through the INDAUS ECTA, Australia will help more Indians gain the education and experience to make a contribution in both countries. Australia has offered 1000 places in the work and holiday programme so more Indians can experience the Australian way of life.

Australia will increase post-study work visa durations for Indian graduates with bachelors in STEM and ICT fields with first class honours. Through these measures this FTA of INDAUS ECTA will bind together both countries in a more enduring fashion. In fact as per GOI estimates this particular trade Pact will create 01 million jobs with in next 4 to 5 years with two way trade valued at 24.3 billion USD.

The trade deal expects exports to India grow around 45 billion USD BY 2035, lifting India thereby to top 3 export markets. As if this was not enough the Australian government recently announced the largest single investment in the bilateral relationships with India of more than 280 Million USD across skills, diplomacy, clean technology, critical minerals and space cooperation. Though all is not Honky dory on Indian foreign trade policy front despite such trade deals fructifying.

One such facet acting as a drag on India’s foreign trade policy is the poor manufacturing sector. In the recent period manufacturing sector in India was 14% of the total GDPs share. For an advanced or developed world like Germany, US, UK, South Korea, and Japan the comparable figures are 19%, 15%, 25%, and 13% respectively. For emerging or developing economies like China, Turkey, Russia, and Brazil the figures are 27%, 19%, 20% and 13% respectively with 8% for lower income countries as their share of total GDP.

India with 14% of share in its GDP as manufacturing sector is a long way short of its stated aim of making manufacturing as the main hub of its economy. Another problem which India’s foreign trade policy is to suffer from is the idea of ‘Protectionism” though India alone is not in this dragnet of ‘Protectionism’. But with ‘Atmanirbhar Bharat campaign’ surging ahead full steam under the Modi regime this feeling is gaining ground increasingly in countries intending to transact business with India.

Given the fact that India is not part to any mega trade deals, this INDAUS ECTA deal would be an important part of a positive trade policy agenda to take India to its exalted position of business partnerships the world over. Actually our foreign trade policy framework must be supported by economic reforms the like of which gained traction under our venerated Ex FM Man Mohan Singh in the early 90s.

Economic reforms that must result in open, competitive and technologically innovative Indian economy. Nationalism, populism, nativism and protectionism many a times exploit masses their sense of being left behind and excluded from the system. I am sure this new INDAUS ECTA pact will cater to both the consumers of India and Australia as also lift the oft repeated sentiment from ‘Consumer’s satisfaction ‘ to ‘Consumer’s delight’.

(The writer is a retired army officer)