India and Free Trade Agreements (FTAs)

India is on the verge of finalizing a Free Trade Agreement (FTA) with New Zealand, amidst ongoing discussions with countries like Oman, Chile, Israel, and Canada. The proliferation of FTAs raises questions about India's motivations for such extensive engagements.

Motivations Behind India's FTAs

• Trade Theory Insight:
  • FTAs generally formalize existing trade flows rather than create new trade opportunities.
  • They tend to balance political forces of exporters and firms facing competition from imports.
• Economic and Political Tools:
  • FTAs go beyond trade, facilitating cooperation in services, investment, and other advanced commitments.
  • They are increasingly used as instruments of foreign policy, providing strategic insurance in a volatile geopolitical environment.

Economic Performance of RTAs

• India's trade volumes with Regional Trade Agreement (RTA) partners have remained stagnant or declined.
• Most agreements focus on commodities where tariffs were already low, limiting benefits for India.
• Services trade remains underdeveloped, with only a few agreements incorporating it meaningfully.

Strategic Objectives

• FTAs like ASEAN advance strategic goals, aligning with the QUAD (India, US, Australia, Japan) in the Indo-Pacific region.
• Recent FTAs with significant economies like UAE emphasize services and investment.

Geopolitical Shifts and Future Directions

• The global strategic landscape is evolving, influenced by US-China dynamics.
• India's FTAs are increasingly driven by strategic rather than economic motivations.
• The Ministry of External Affairs (MEA), rather than the Commerce Ministry, is pivotal in FTA negotiations.