Free Trade Agreement (FTA) between India and the European Union (EU)

The announcement of an FTA between India and the EU is significant for India's economic strategy, highlighting a shift towards increased export-driven growth. While it presents new opportunities, it is not a panacea, and India must pursue domestic reforms to fully capitalize on this agreement.

Reasons for Optimism

• Expansion Potential: India, being the fourth-largest economy, contributes less than 2% to global goods exports. A modest increase in market share could significantly boost exports.
• Global Shifts: Diversification away from China offers India opportunities to become an alternative production base, particularly with its young population and manufacturing potential.
• Opportunities from FTAs: The EU pact offers access to 450 million consumers and, combined with other potential agreements, could help generate necessary employment.

Necessary Reforms

To leverage the FTA effectively, India needs to implement key structural reforms:

• Trade Regime Reform:
  • Reduce tariffs on intermediate goods to make exports more competitive.
  • Streamline Customs procedures and rationalize import duties.
  • Reevaluate Quality Control Orders (QCOs) that act as import barriers.
• Investment Protection Framework:
  • Revise bilateral investment treaties (BITs) to attract foreign direct investment (FDI).
  • Current BIT conditions limit international arbitration, deterring major global firms.
  • Modernizing BIT frameworks is essential for sustained manufacturing FDI.
• Joining Regional Trade Groupings:
  • Consider joining agreements like the CPTPP to enforce domestic reforms.
  • Such memberships help strengthen labour laws, intellectual property, and regulatory standards.

Conclusion

The FTA with the EU should initiate a broader transformation in India's trade policy. Achieving the "Viksit Bharat 2047" goal requires a commitment to trade openness, lower input tariffs, stronger investment protection, and comprehensive structural reforms. The urgency lies in whether India can act swiftly to capitalize on reorganizing global supply chains.