Assignment

Of
Business Economics

Topic: Analysing the Economic Impact of

India's Free Trade Agreements (FTAs).

By:
Name: Piyush Khajuria
Roll No: 2022/09/150
Course: BCom Hons.
Section: B
Submitted to: Arvind Gupta Sir
Analyzing the Economic Impact of India's Free Trade
Agreements (FTAs).

1. Introduction:
Free Trade Agreements (FTAs) are vital instruments in the realm of international trade,
facilitating the reduction or elimination of tariffs, quotas, and other trade barriers
between two or more countries. These agreements aim to foster closer economic ties,
enhance trade flows, and promote economic growth by providing a competitive edge to
domestic industries. Over the past few decades, India has actively pursued Free Trade
Agreements as part of its broader strategy to integrate into the global economy and
strengthen its trade relationships with key partners.
India's journey with FTAs began in the early 1990s, coinciding with the liberalization of
its economy. The economic reforms of 1991, which marked a shift from a protectionist
trade policy to a more open and market-oriented approach, set the stage for India to
embrace bilateral and regional trade agreements. As of today, India has signed a series
of FTAs with several countries and regional blocs, including the Association of Southeast
Asian Nations (ASEAN), Japan, South Korea, and, more recently, the United Arab
Emirates and Australia. These agreements cover a wide range of sectors, from goods and
services to investments and intellectual property rights, reflecting India's ambition to
diversify its trade portfolio.

The Growing Importance of FTAs for India

The significance of FTAs for India cannot be overstated, given the country's aspirations
to become a $5 trillion economy. These agreements are seen as a catalyst for boosting
India's exports, attracting foreign direct investment (FDI), and enhancing
competitiveness in the global market. By providing Indian exporters preferential access
to key markets, FTAs help reduce the cost of exports, making Indian goods and services
more competitive. Additionally, the liberalization of import tariffs under FTAs provides
Indian consumers with access to a wider range of goods at competitive prices, while also
enabling Indian industries to access raw materials and intermediate goods at lower
costs.
However, the benefits of FTAs are not without controversy. While proponents argue
that FTAs lead to increased trade volumes, job creation, and economic growth, critics
caution against the potential adverse impacts on domestic industries that may struggle
to compete with cheaper imports. There are also concerns about trade imbalances, loss
of tariff revenue, and the impact on vulnerable sectors such as agriculture and small-
scale industries.
Objectives of Analyzing the Economic Impact of India's
FTAs
Given the growing number of FTAs and their potential implications for the Indian
economy, it becomes imperative to analyze their economic impact comprehensively.
The primary objectives of this analysis include:
1. Assessing Trade Performance: Understanding how FTAs have influenced India's trade
volumes, trade balance, and market diversification. This involves analyzing the
trends in exports and imports with FTA partner countries and identifying sectors that
have benefited or faced challenges due to these agreements.
2. Evaluating Sectoral Impacts: Examining the impact of FTAs on various sectors of the
Indian economy, including manufacturing, agriculture, services, and small and
medium enterprises (SMEs). The focus will be on identifying sectors that have
experienced significant growth or decline in trade and investment flows post-FTA
implementation.
3. Understanding the Impact on Competitiveness: Analyzing how FTAs have affected
the competitiveness of Indian industries in the global market. This includes assessing
changes in productivity, cost structures, and the ability of Indian firms to integrate
into global value chains.
4. Investment and FDI Trends: Investigating the role of FTAs in attracting foreign direct
investment to India. This involves analyzing trends in FDI inflows from FTA partner
countries and the impact on India's investment climate.
5. Policy Implications and Recommendations: Drawing insights from the analysis to
inform policymakers on optimizing the benefits of existing FTAs and negotiating
future agreements. This includes identifying areas for improvement, such as
addressing non-tariff barriers, enhancing trade facilitation measures, and ensuring a
balance between protecting domestic industries and promoting market access.

India’s engagement with FTAs: Current Status

 Treaty of Transit between India and Nepal:

The India-Nepal Treaty of Transit, renewed every seven years, provides for port facilities
to Nepal at Kolkata and specifies 15 transit routes between Kolkata and the India-Nepal
border. As requested by the Nepalese side, a separate Customs Cell at Haldia has
become operational from 16th August 2004. For bilateral trade, 22 entry/exit points are
provided along the Indo- Nepal border. The Transit Treaty was last renewed in March
2006. The Agreement for Cooperation between India and Nepal to Control Unauthorized
Trade was automatically renewed for five years in March 2007.
Since the implementation of India-Nepal Treaty of Transit in 2009, India’s exports to
Nepal grew at a staggering pace compared to imports from Nepal. The treaty has
worked in favour of India as India’s exports grew from USD 1.32 billion in 2009 to USD
4.53 billion in 2016 whereas imports from Nepal declined from USD 416.34 million to
USD 385.31 million during the same period.

 Agreement on Economic Cooperation between India and Finland:

The Agreement on Economic Cooperation between India and Finland was signed with
objectives to promote activities aimed at the development of bilateral economic
cooperation; support and develop business contacts, facilitate the expansion of bilateral
trade and investment and promote economic and investment opportunities in
respective countries; and reinforce cooperation for the enhancement of economic
relations between the two nations.
With the implementation of India- Finland Agreement of Economic Cooperation, India’s
imports from Finland witnessed a surge from USD 1.39 billion in 2010 to USD 1.97 billion
in 2011. However, since then imports from Finland witnessed a consistent fall to arrive
at USD 933.5 million in 2016. Comparatively, India’s trade with Finland has remained in
the deficit zone. Interestingly, the pre- and post- analysis suggests that the widened
trade gap during the pre-agreement has actually narrowed down to an extent in favour
of India.

 South Asian Free Trade Agreement (SAFTA):

South Asian FTA came into effect in 2006 and the trade liberalization process
commenced thereafter. SAFTA instigated with the reduction in tariff rates to 20 per cent
in the first phase by 2007, and followed by zero in the second phase on annual basis till
2012, in case of India, Pakistan, and Sri Lanka. Rest of the members were given an extra
three years to reduce the tariffs to zero. Tariff reduction could not be translated into a
higher intraregional trade as SAFTA was not able to capture the confidence due to
restrictions on products, multiple exemptions, and constrained rules of origin. Members
include Afghanistan, Bangladesh, Bhutan, India, Nepal, Sri Lanka, Pakistan and Maldives.
Post implementation of South Asian Free Trade Agreement in 2006, India’s exports to
other SAARC members have grown tremendously from USD 6.23 billion in 2006 to USD
16.93 billion in 2016. SAARC region accounts for about 6.5 percent of India's total
exports, whereas they only supply about 0.8 per cent of India's total imports. In 2015
India's share in total exports among all SAARC members to SAARC region was around 83
per cent whereas in total imports it was around 15 percent. India's compound annual
growth rate (CAGR) for exports among all SAARC members to SAARC region was also
recorded highest at 11.98 percent for the last decade (from 2006 to 2015).

 Asia Pacific Trade Agreement (APTA)

APTA or the Bangkok Agreement came into effect in 1976. Members include Bangladesh,
India, Lao, China, Mongolia, South Korea, and Sri Lanka. It is the oldest preferential trade
agreement between countries in the Asia-Pacific region. APTA’s key objective is to
hasten economic development among the six participating states opting trade and
investment liberalization measures that will contribute to intra-regional trade and
economic strengthening through the coverage of merchandise goods and services. Its
aim is to promote economic development and cooperation through the adoption of
trade liberalization measures.
In 2001, India’s trade with APTA members remained in a balanced position at around
USD 3 billion. Since then, India’s imports witnessed a sudden surge to value at USD 74.18
billion in 2016. Contrary, the exports from India grew at a sluggish pace to value at USD
22.19 billion. The trade gap has expanded exponentially in favour of other APTA
members since 2001.

 Comprehensive Economic Cooperation Agreement between India and

Singapore
The Comprehensive Economic Cooperation Agreement (CECA) is a free trade agreement
between Singapore and India to strengthen bilateral trade. It was signed on 29th June
2005. Since the implementation of CECA between India and Singapore in 2005, India’s
trade with Singapore has witnessed a positive shift. The trade between two nations has
shifted from a range of USD 0 – 5 billion to USD 5-22 billion during the post-agreement
period. In the recent period, India’s exports to Singapore grew to USD 11 billion in 2011,
however, since then India’s exports to Singapore consistently declined to value at USD
14.07 billion in 2016. On the imports front, India imported USD 6.72 billion in 2016 from
Singapore.

 Comprehensive Economic Cooperation Agreement between India and

Malaysia
India-Malaysia’s Comprehensive Economic Cooperation Agreement (CECA) was
implemented in 2011 to strengthen and enhance the economic, trade and investment
cooperation between both the nations; to liberalize and promote trade in goods,
services; to facilitate regional economic cooperation and integration and to improve the
efficiency and competitiveness of the manufacturing and services sectors.
Since the implementation of India-Malaysia CECA in 2011, India’s trade with Malaysia
reduced from USD 12.91 billion in 2011 to USD 12.84 in 2016. India-Malaysia attained a
highest trade volume of USD 15.57 billion in 2014, however, since then the trade has
become sluggish. Further, the trade deficit has reduced from USD 6.7 billion in 2014 to
USD 4.46 billion in 2016 for India.

 India Chile Preferential Trade Agreement

India-Chile Preferential Trade Agreement came into effect in 2007. It was aimed to
promote the expansion of trade; provide fair conditions of competition for trade; pay
due regard to the principle of reciprocity in the implementation of agreement; removal
of barriers to trade, to the harmonious development and expansion of world trade
Since the implementation of India – Chile Preferential Trade Agreement in 2009, the
trade between two nations rejuvenated to an extent wherein India’s imports from Chile
grew from USD 888.9 million in 2009 to USD 1.22 billion in 2016 whereas India’s exports
to Chile grew at a lethargic pace to grew from USD 261.56 million in 2007 to USD 652.73
million in 2016. Post signing of the PTA, imports from Chile expanded exponentially to
jump by USD 2.4 billion in a period of four years whereas exports to Chile just expanded
by 442.83 million during the same period. Interestingly, despite sudden spurt in imports
from Chile, India managed to reduce its trade deficit from USD 2.54 billion in 2013 to
USD 565.6 million in 2016.

 India Afghanistan Preferential Trade Agreement

India and Afghanistan signed a Preferential Trade Agreement in March 2003 under
which India allowed substantial duty concessions, ranging from 50% to 100%, to certain
category (38 times) of Afghan dry fruits. Afghanistan in turn has allowed reciprocal
concessions to Indian products, including tea, sugar, cement and pharmaceuticals. In
November 2011, India removed basic customs duties for all SAARC LDCs at the SAARC
Summit in Male which gave all products of Afghanistan (except alcohol and tobacco)
duty free access to Indian market.
Since the implementation of India-Afghanistan PTA in 2003, trade between the two
nations expanded from USD 67.5 million in 2003 to USD 755.29 million in 2016. Exports
from India witnessed a remarkable jump from USD 50.11 million to USD 473 million
during the same period. Interestingly, Afghanistan has been able to expand its share in
overall trade from 25% in 2003 to 38% in 2016.

 India-ASEAN Comprehensive Economic Cooperation Agreement

The ASEAN–India Free Trade Area (AIFTA) is a free trade area among the ten member
states of the Association of Southeast Asian Nations (ASEAN) and India. The initial
framework agreement was signed on 8 October 2003 in Bali, Indonesia and the final
agreement was on 13 August 2009. The free trade area came into effect on 1 January
2010. AIFTA emerged from a mutual interest of both parties to expand their economic
ties in the Asia-Pacific region. India's Look East policy was reciprocated by similar
interests of many ASEAN countries to expand their interactions westward.
Post the implementation of India-ASEAN CECA in 2010, trade between India and ASEAN
nations USD 52.6 billion in 2010 to USD 64.6 billion in 2016. India’s exports to ASEAN
witnessed a drop from USD 37.89 billion in 2013 to USD 26.38 billion in 2016. Contrary,
India’s imports declined from USD 42.31 billion to USD 38.22 billion during the same
period.

 India Bhutan Trade Agreement

To strengthen the trade relationship, India-Bhutan signed a Trade Agreement in 2006.
The free trade regime between India and Bhutan was signed for a period of 10 years.
India Bhutan signed a new bilateral agreement in 2016 aiming at cutting down on
documentation and adding additional exit and entry points for Bhutan’s trade with other
countries. It is also expected to further strengthen the excellent relations between the
two countries.
Since the implementation of India Bhutan trade agreement in 2006, India has
transformed itself from a net-importer to a net-exporter of trade. From a trade deficit of
USD 52.48 million in 2006, India has leapfrogged to a trade surplus of 246.88 million in
2016. India’s exports to Bhutan expanded from USD 63.8 million in 2006 to USD 374.21
million in 2016. On the other hand, India’s imports from Bhutan expanded from USD
116.29 million to USD 127.33 million during the same period.

 India Japan CEPA

The India-Japan Comprehensive Economic Partnership Agreement (CEPA) came into
effect on 1st August 2011 and is the most comprehensive free trade agreement that
India has entered into with any country. It consists of agreed measures on liberalization
of trade in goods, trade in services and investment and an agreement to implement
cooperation in a number of identified areas.
Since the implementation of India-Japan CEPA in 2011, trade between India and Japan
has actually reduced from USD 16.81 billion in 2011 to USD 13.64 billion in 2016. Apart
from the rising trend till 2012, trade between both nations has fallen consistently.
India’s exports to Japan fell to USD 3.83 billion in 2016 compared to USD 5.59 billion in
2011. On the flip side, India’s imports from Japan fell from 11.22 billion to USD 9.81
billion during the same period.

 India South Korea CEPA

The Comprehensive Economic Partnership Agreement (CEPA) is a free trade agreement
between India and South Korea. The agreement was signed in 2009 and came into effect
in 2010. Since the implementation of India-South Korea CEPA in 2010, trade between
both the nations has expanded, particularly and profoundly in favour of South Korea.
Trade between India and South Korea expanded from USD 13.56 billion in 2010 to USD
16 billion in 2016. India’s exports to South Korea have remained dreary to value at USD
3.47 billion in 2016 from USD 3.63 billion in 2010. On the other hand, India’s imports
from South Korea, post CEPA, expanded from USD 9.92 in 2010 to USD 12.21 billion in
2016.

 India MERCOSUR Preferential Trade Agreement

MERCOSUR is a trading bloc in Latin America comprising Brazil, Argentina, Uruguay and
Paraguay. A Framework Agreement was signed between India and MERCOSUR in 2003
at Paraguay. As a follow up to the Framework Agreement, a Preferential Trade
Agreement (PTA) was signed in New Delhi in 2004. Finally, the agreement came into
effect in 2009. The aim of this Preferential Trade Agreement was to expand and
strengthen the existing relations between MERCOSUR and India and promote the
expansion of trade by granting reciprocal fixed tariff preferences with the ultimate
objective of creating a free trade area between the two groups.
Post implementation of India-MERCOSUR PTA in 2009, trade expanded at a good pace.
The trade recovered from USD 7.65 billion in 2009 to USD 29.02 billion in 2014.
However, the recovery part could not continue as trade fell to USD 14.6 billion in the
period of next two years. India’s exports grew from USD 2.31 billion in 2009 to USD 3.14
billion in 2016 whereas India’s imports grew from USD 5.34 billion to USD 11.46 billion
during the same period. The trade surplus has remained in favour of MERCOSUR
nations.

Impact of Free Trade Agreements

 India's FTAs have significantly contributed to its economic growth. For
example, FY 2023-24 closes with highest monthly merchandise exports
of the current FY in March 2024 at USD 41.68 Billion, partially attributed
to FTAs.
 Non-petroleum & Non-Gems & Jewellery exports rose by 1.45 percent,
from USD 315.64 billion in FY 2022-23 to USD 320.21 billion in FY 2023-
24.
 Drugs and pharmaceuticals exports increase by 9.67 percent from USD
25.39 billion in FY 2022-23 to USD 27.85 billion in FY 2023-24.
 Engineering Goods exports increase by 2.13 percent from USD 107.04
billion in FY 2022-23 to USD 109.32 billion in FY 2023-24. While
electronic goods exports increase by 23.64 percent from USD 23.55
billion in FY 2022-23 to USD 29.12 billion in FY 2023-24.
 The overall trade deficit is projected to improve significantly by 35.77
percent, decreasing from USD 121.62 billion in FY 2022-23 to USD 78.12
billion in FY 2023-24. Meanwhile, the merchandise trade deficit is
expected to improve by 9.33 percent, reaching USD 240.17 billion in the
current fiscal year compared to USD 264.90 billion in FY 2022-23.
 The average tariff reduction in FTAs ranges between 80 percent and 100
percent on various goods, making Indian products more competitive
globally.
 Consumers enjoy lower prices due to reduced tariffs, with the average
tariff rate for 2022 was 0.00 percent, a 5.87 percent decline from 2021.
What ails India’s goods exports?
In order to understand the effectiveness of trade agreements, they should
be viewed against their trade potential (Chanda & Tokas, 2020). In all the
FTAs signed so far, India promoted products such as textiles, minerals,
agricultural products, precious stones, cement, and glass (GOI, 2020).
Measures of Revealed comparative advantage (RCA) have been used to
help assess a country’s export potential (WITS, 2022a).5 The goods
promoted by India in FTAs were competitive goods that initially displayed a
high RCA. The RCA values for 20 goods categories (aggregated at the HS-01
level) which cover the entire set of goods exports from India are shown in
Figure 3.6 These values are shown at three different points in time, spaced
about a decade apart in the pre-COVID period. As can be observed, there is
a clear drop in RCAs of several goods promoted through FTAs between
2000-2019. The only categories where India seems to have developed a
comparative advantage during this time period are chemicals and metals
(where the RCA has increased and remains beyond 1). With several Indian
products being promoted through FTAs, we discuss various factors that
have contributed to the reduction of India’s export competitiveness over
time:
1. Low value addition: India’s top exports feature low-value added goods
such as refined petroleum, gems, and jewellery, as per data from the
World Integrated Trade Solution database (WITS, 2022b). The
proportion of high-technology goods within manufactured exports has
remained around 10 percent over the past decade. In comparison to
this, Figure 4 shows that there has been a recent growth in the share of
technology exports for many of India’s FTA peers, reflecting value-
addition. For example, Vietnam has shown an extreme increase in the
last decade, and India is discussing a trade agreement with Vietnam
(Livemint, 2023). Subsequently, these FTA peers have successfully
established a market for their high-value goods in India.7 A case in point
is South Korea, whose top exports to India include high-value electrical
goods and automobiles and imports include low-value metals, minerals,
and textiles from India (Banik & Kim, 2022).
2. Third country competition (India’s declining market shares): India
enjoyed a quarter of the world’s market share for textiles in the early
2000s (WITS, 2022c). Over the years there has been an erosion of this
market share due to an absence of trade agreements with major
importers such as US and EU (DEPR, RBI, 2021). India’s market share
decreased from 26% in 2000 to 21% in 2003 and declined further in next
years. In contrast, major textile exporters such as Vietnam, Malaysia,
Turkey, and South Korea have trade agreements in place with at least
one major importer. Such trade agreements allowed free entry of
textiles when India faced tariffs as high as 32 percent in the US for textile
products such as T-shirts (Mukherjee et al., 2019).

3. Competition in similar industries: Despite India’s comparative

advantage in primary goods such as vegetables, fruits, cereals, fuel, and
minerals – the largest share (24 percent) of exports to FTA partners
consisted of metals and semi-manufactured products in 2019. The semi-
manufactured products sector is already dominated by China and ASEAN
nations such as Indonesia, Vietnam, and Thailand. This creates a lack of
structural complementarity in the goods traded and reduces the scope
for trade. Research shows that regions that are structurally dissimilar
tend to have more scope for trade and hence increase the chances for a
more successful FTA (Andreosso‐ O’Callaghan, 2009). Two trading
nations with distinctly different export profiles can be called as
structurally complementary to one another. Even to net food importing
countries such as Japan and South Korea, India’s top ten exports include
metals such as steel as per data from WITS (2022b). Steel being a
competitive industry in Japan and South Korea; India’s steel exports
have lower scope for expansion in these countries (TPCI, 2021). It is
worthwhile to contrast such a strategy to the one shown by a country
like Australia. Australia’s exports basket doubles down on its efficiencies
which include minerals, and agricultural goods, and has sustained trade
surpluses with FTA partners like Japan and South Korea.

4. Lack of a vibrant regional trade agreement: Theory predicts that trade

agreements made with neighboring countries should be successful,
given lower freight costs and similar cultural connections (Baier &
Bergstrand, 2004; Boisso & Ferrantino, 1997; Wonnacott & Lutz, 1989).
 However, India’s trade regionally is highly restricted, even in the
presence of an agreement such as SAFTA. For example, the average
costs of trade within South Asia are 20 percent higher relative to country
pairs in the Association 0 10 20 30 40 50 60 Bangladesh Japan Malaysia
Nepal Thailand Vietnam India Korea, Rep. of Southeast Asian Nations
(ASEAN) and over three times higher than the corresponding costs
among the countries of the North American Free Trade Agreement
(Kathuria, 2018).

5. Within-country trade barriers: Complex rules of origin criteria, lack of

information on the benefits of FTAs, high compliance costs, and
administrative delays dissuade exporters from using preferential trade
routes. For example, evidence from the SriLankan FTA shows that there
has been a 50 percent decline in FTA utilization by exporters from either
side over the years (Pohit & Pal, 2020). The authors explain that this has
occurred due to an increase in compliance costs created by new trade
regimes. In general, the utilization rate of RTAs by exporters in India is
meagre, ranging between 5 and 25% (Saraswat et al., 2018).

Further, India has the highest import tariffs amongst its East Asian and
Southeast Asian FTA partners, averaging around 10.21 percent in 2019
(WITS, 2022b). High import tariffs can feed into the cost of exportable
products. On a similar note, even though India possesses a large
comparative advantage in services, there exists several restrictions to its
trade. The latest available estimate of the World Bank’s services
restrictiveness to trade index (STRI) pegs India at 65 percent8 – which is
the highest amongst all its current FTA partners (World Bank, 2012). For
example, India-Japan signed FTA with provisions for preferential access
to telecommunication services, however Japan’s STRI index for
‘restriction on foreign entry’ is 0.099, while the same is 0.159 for India,
suggesting higher trade barriers (OECD-STRI, 2021).

6. Cost and Quality issues: Often India does not seem to have grown in
market share even by virtue of concessional tariff rates offered through
 an FTA. A case in point is India’s fuel and textile exports to Japan. India’s
fuel exports dropped by as much as 65 percent in the years post the
Indo-Japan FTA. Similarly, India has a very low (0.05 percent) share in the
Japanese textile market despite zero tariffs applied through the
Japanese CEPA (Mukherjee et al., 2019). This points to systemic issues
such as quality and cost that undermine the competitiveness of Indian
goods

7. Other domestic issues: Besides these measures, India’s exports have

also suffered from non-tariff barriers (NTBs). As academic literature
notes, NTBs have become a popular protectionist tool in recent years,
and a typical NTB (import controls, state aid, localization policies, TBT
and SPS9 measures) reduces trade by almost 2-11% (Kinzius et al., 2019).
In the past, India faced SPS-related concerns when several countries,
such as EU, United States, and Japan, practiced discretionary
implementation of SPS measures, at times motivated by self-interest
(Kasturi Das, 2008). Analyzing a global database of 200 countries,
Kazunobu & Fukunari (2014) suggests that mere signing of a FTA leads to
a significant fall in NTBs rates, with the food and tobacco sectors.
benefitting the most. India being one of the largest exporters of food
and tobacco products, it stands to benefit greatly from FTAs with
effective clauses for a reduction in NTBs

Effect of different Indian FTA on key sector of india

1. India-ASEAN FTA
Sectors Impacted: Manufacturing, Agriculture, Automotive, Textiles
 Manufacturing Sector:
o Positive Impact: Since the implementation of the India-ASEAN FTA
in 2010, trade between India and ASEAN increased significantly.
India's exports to ASEAN countries grew from $18.11 billion in
2010 to $44.0 billion in 2023, highlighting a positive impact on
sectors like machinery and chemicals.
o Challenges: Imports from ASEAN countries surged from $25.8
billion in 2010 to $60.8 billion in 2023, particularly in electronics
and machinery, creating competition for domestic manufacturers.
  Agricultural Sector:
o Positive Impact: Agricultural exports, such as marine products,
saw an increase. For instance, exports of marine products to
ASEAN grew by over 30% between 2018 and 2023.
o Challenges: The FTA led to a surge in palm oil imports from
Indonesia and Malaysia, which increased from 2.3 million tons in
2010 to 4.9 million tons in 2023, impacting local oilseed farmers.
 Textiles and Apparel:
o Positive Impact: Textiles exports to ASEAN countries, particularly
cotton fabrics, increased by 18% from $1.2 billion in 2015 to $1.42
billion in 2023.
 Automotive Sector:
o Positive Impact: Exports of auto components from India to ASEAN
nations grew by 22% between 2016 and 2023, driven by demand
in Thailand and Indonesia.
o Challenges: However, automotive imports from ASEAN countries,
especially two-wheelers from Thailand, increased by 15%
annually, affecting domestic players.

2. India-Japan Comprehensive Economic Partnership Agreement (CEPA)

Sectors Impacted: Pharmaceuticals, Automobiles, IT & Services, Consumer
Goods
 Pharmaceuticals:
o Positive Impact: Indian pharmaceutical exports to Japan grew
from $93 million in 2011 (pre-CEPA) to $354 million in 2023,
driven by demand for generic drugs.
 Automotive Sector:
o Positive Impact: The FTA led to a surge in Japanese investments in
India’s automotive sector, with cumulative Japanese FDI in this
sector increasing by over 40% from $2.1 billion in 2010 to $3.5
billion in 2023.
 o Challenges: Imports of Japanese auto components increased by
35%, impacting local suppliers who faced stiff competition.
 IT & Services:
o Positive Impact: India's IT exports to Japan increased from $680
million in 2011 to $1.5 billion in 2023, aided by liberalized service
trade provisions.

3. India-South Korea Comprehensive Economic Partnership Agreement

(CEPA)
Sectors Impacted: Electronics, Steel, Chemicals, Automobiles
 Electronics:
o Challenges: The agreement led to a significant rise in electronic
imports from South Korea, with imports of mobile phones and
components growing from $400 million in 2010 to $2.8 billion in
2023, impacting domestic production.
 Steel and Chemicals:
o Positive Impact: India's steel exports to South Korea increased by
20%, reaching $950 million in 2023, primarily driven by high-grade
steel demand.
 Automobiles:
o Positive Impact: South Korean investments in India’s automotive
sector surged, with companies like Kia Motors investing $2 billion
in setting up a manufacturing plant in Andhra Pradesh, creating
over 12,000 jobs.
o Challenges: Car imports from South Korea increased by 17%, with
brands like Hyundai and Kia capturing a larger market share in
India.

4. India-Sri Lanka Free Trade Agreement (ISFTA)

Sectors Impacted: Textiles, Agriculture, Fisheries, Automobiles
 Textiles:
 o Positive Impact: Indian textile exports to Sri Lanka, particularly
fabrics, increased from $263 million in 2010 to $519 million in
2023.
 Agriculture & Fisheries:
o Positive Impact: India's agricultural exports to Sri Lanka, such as
fruits and vegetables, grew by 28% between 2015 and 2023.
o Challenges: Imports of spices and tea from Sri Lanka increased,
impacting local producers in states like Assam and Kerala.
 Automobiles:
o Positive Impact: Two-wheeler exports from India to Sri Lanka rose
by 45% between 2010 and 2023, making Sri Lanka one of the top
markets for Indian motorcycles.

5. India-UAE Comprehensive Economic Partnership Agreement (CEPA)

Sectors Impacted: Gems & Jewelry, Textiles, Petroleum, Services
 Gems & Jewelry:
o Positive Impact: Exports of gems and jewelry to the UAE grew
from $5 billion in 2019 to $10 billion in 2023 post-CEPA, driven by
reduced tariffs.
 Textiles & Apparel:
o Positive Impact: Textiles exports to the UAE increased by 35%
between 2022 and 2023, with ready-made garments contributing
significantly to this growth.
 Petroleum:
o Positive Impact: The agreement facilitated smoother trade in
petroleum products, with exports increasing from $7 billion in
2021 to $12 billion in 2023.
 Services:
o Positive Impact: India's IT and professional services exports to the
UAE rose by 18% in 2023, aided by liberalized visa norms for
Indian professionals.
6. India-Mercosur Preferential Trade Agreement
Sectors Impacted: Agriculture, Pharmaceuticals, Engineering Goods
 Agriculture:
o Positive Impact: Agricultural exports, particularly rice and spices,
to Mercosur countries increased by 22% from $1.1 billion in 2015
to $1.35 billion in 2023.
o Challenges: Imports of sugar and soybean oil from Mercosur
increased by 30%, impacting domestic oilseed farmers.
 Pharmaceuticals:
o Positive Impact: Indian pharmaceutical exports to Mercosur
countries grew from $500 million in 2015 to $860 million in 2023,
driven by demand for affordable generic drugs.
 Engineering Goods:
o Positive Impact: Engineering exports, including machinery, grew
by 28% to reach $1.4 billion in 2023, making Mercosur a key
market for Indian exporters.

Opportunities for Indian SMEs in the Wake of FTAs

FTAs can provide significant opportunities for SMEs by opening access to
international markets, promoting exports, and enhancing competitiveness.
Here are some key benefits:
a. Access to New Markets
 Market Expansion: FTAs reduce tariffs and non-tariff barriers, making it
easier for SMEs to export their products to partner countries. For
example, India's FTA with ASEAN countries led to increased exports,
particularly in sectors like textiles, leather, and chemicals.
 Increased Exports: According to a report by the Federation of Indian
Export Organisations (FIEO), India's FTAs with countries like Japan, South
Korea, and ASEAN have helped Indian SMEs tap into these markets,
leading to a 10-15% increase in exports in certain sectors.
b. Cost Reduction
 Reduced Tariff Barriers: By eliminating or reducing tariffs, FTAs lower
the cost of raw materials and components, thus reducing the production
cost for SMEs. For example, India's Comprehensive Economic
Partnership Agreement (CEPA) with Japan has resulted in tariff
reductions of up to 90% on various goods.
 Lower Operational Costs: For instance, the India-UAE Comprehensive
Economic Partnership Agreement (CEPA) has reduced tariffs on gems
and jewelry, benefiting Indian SMEs by lowering operational costs.
c. Enhanced Competitiveness
 Technology Transfer and Investments: FTAs often lead to increased
foreign direct investments (FDIs) and technology transfer, which can
help Indian SMEs adopt new technologies and improve product quality.
 Supply Chain Integration: Indian SMEs, especially in sectors like auto
components and textiles, have integrated into global supply chains due
to FTAs, enhancing their global presence.
2. Challenges Faced by Indian SMEs Due to FTAs
Despite the opportunities, SMEs encounter several challenges in leveraging
FTAs:
a. Lack of Awareness and Understanding
 Low Utilization of FTAs: A study by the Indian Council for Research on
International Economic Relations (ICRIER) found that only 30% of Indian
exporters and importers utilize FTAs, largely due to a lack of awareness
and understanding of the benefits and processes involved.
 Complex Rules of Origin: Many SMEs find it challenging to comply with
the Rules of Origin (RoO) criteria, which determine the national source
of a product. The complexity of these rules often discourages SMEs from
using FTAs.
b. Non-Tariff Barriers (NTBs)
 Regulatory Hurdles: SMEs often struggle with non-tariff barriers, such as
stringent quality standards and certification requirements in FTA partner
 countries. For instance, Indian SMEs in the pharmaceutical and food
processing sectors face challenges meeting EU standards.
 Lack of Trade Facilitation: Limited knowledge of customs procedures,
documentation, and logistics can hinder SMEs' ability to benefit from
FTAs.
c. Competitive Pressure
 Increased Competition: FTAs expose Indian SMEs to increased
competition from foreign firms. For example, the India-ASEAN FTA led to
increased competition for Indian SMEs in sectors like electronics and
textiles.
 Limited Product Diversification: Many Indian SMEs lack the resources to
diversify their product offerings, making them vulnerable to competition
from established foreign players.
3. Access to International Markets for Indian SMEs
FTAs have the potential to boost the export capabilities of Indian SMEs.
However, to effectively access international markets, SMEs need support in the
following areas:
a. Export Credit and Financing
 Limited Access to Finance: According to a report by the Reserve Bank of
India (RBI), only 16% of Indian SMEs have access to formal finance.
Enhancing access to export credit can help SMEs expand into FTA
markets.
 Credit Guarantee Schemes: Expanding schemes like the Export Credit
Guarantee Corporation (ECGC) can mitigate risks for SMEs exporting to
new markets.
b. Market Intelligence and Trade Facilitation
 Need for Market Research: SMEs often lack the resources to conduct
market research. Government-backed market intelligence and trade
facilitation services can help SMEs identify opportunities in FTA markets.
 Digital Platforms: Leveraging digital trade platforms can enable SMEs to
reach international customers more effectively.
4. Policy Measures to Support Indian SMEs in Utilizing FTAs
To enable Indian SMEs to maximize the benefits of FTAs, the following policy
measures are recommended:
a. Capacity Building and Awareness Programs
 FTAs Training Programs: The government can collaborate with industry
bodies to conduct training programs on the benefits and utilization of
FTAs. This can include simplifying information related to Rules of Origin,
tariff schedules, and documentation requirements.
 Dedicated FTA Help Desks: Establishing dedicated help desks to assist
SMEs with FTA-related queries can improve utilization rates.
b. Simplification of Procedures
 Ease of Doing Business: Simplifying customs procedures and reducing
red tape can help SMEs take advantage of FTAs. The government's
efforts under the National Single Window System are steps in this
direction.
 Streamlined Compliance: Offering support for compliance with
international standards and certifications can help SMEs overcome non-
tariff barriers.
c. Financial Support and Incentives
 Export Subsidies and Incentives: Expanding schemes like the
Merchandise Exports from India Scheme (MEIS) and Remission of Duties
and Taxes on Export Products (RoDTEP) can incentivize SMEs to explore
FTA markets.
 Access to Export Credit: Strengthening financial institutions like SIDBI
(Small Industries Development Bank of India) to provide easier access to
export credit can be beneficial.
d. Encouraging Digital Adoption
 Digital Trade Facilitation: Promoting the use of e-commerce platforms
can help SMEs reach international markets. Government initiatives like
"Digital India" and "Make in India" can be leveraged to support SMEs in
adopting digital trade solutions.
5. Empirical Data and Case Studies
  India-ASEAN FTA Impact: According to the Ministry of Commerce,
India's exports to ASEAN grew by $9.7 billion from 2010 to 2020 after
the FTA implementation.
 Utilization Rate: As per a CII survey, only 25% of Indian SMEs are aware
of the benefits of FTAs, highlighting the need for increased awareness.
 Sectoral Impact: The Engineering Export Promotion Council of India
(EEPC) noted that Indian engineering exports to Japan increased by 30%
after the India-Japan CEPA, demonstrating the potential of FTAs in
boosting SME exports.

Conclusion
India's Free Trade Agreements (FTAs) have had a significant, though varied,
impact on the nation's economic landscape. These agreements, designed to
reduce tariffs and non-tariff barriers between India and its trading partners,
have created both opportunities and challenges across various sectors.
On the positive side, FTAs have substantially boosted India's export potential
by providing preferential market access to partner countries. Key sectors such
as textiles, pharmaceuticals, chemicals, and automotive components have seen
noticeable growth in exports due to reduced tariffs and better trade terms. For
example, agreements like the India-ASEAN FTA and the India-Japan
Comprehensive Economic Partnership Agreement (CEPA) have opened up new
markets for Indian exporters, leading to increased trade volumes. The
elimination of tariffs on a wide range of goods has not only enhanced India's
competitiveness in global markets but has also encouraged foreign
investments in key industries. This has been crucial in integrating Indian
businesses into global value chains, particularly in manufacturing and services.
Moreover, FTAs have helped Indian industries diversify their export markets
beyond traditional destinations like the US and EU, reducing over-reliance on a
few markets and increasing resilience against global trade fluctuations. By
expanding access to regions such as Southeast Asia, East Asia, and the Middle
East, Indian businesses have gained new avenues for growth and expansion.
However, despite these benefits, the impact of FTAs has not been uniformly
positive across all sectors of the economy. While certain industries have
thrived, others have faced significant challenges. One of the major concerns
has been the influx of cheaper imports from FTA partner countries, which has
intensified competition for domestic producers. For example, the India-ASEAN
FTA led to an increase in imports of electronic goods and machinery, putting
pressure on Indian manufacturers in these segments. The agriculture and dairy
sectors, in particular, have expressed concerns over being exposed to cheaper
imports, which can hurt local farmers and small producers.
Small and Medium Enterprises (SMEs), which form the backbone of India's
economy, have been especially vulnerable. Despite their potential to drive
exports and job creation, many SMEs have struggled to capitalize on FTAs due
to a lack of awareness, limited resources, and inadequate understanding of
complex trade agreements. Studies show that only a small percentage of
Indian SMEs actively utilize FTAs, mainly due to challenges in navigating the
Rules of Origin requirements and meeting international standards.
Additionally, non-tariff barriers like stringent quality certifications and
regulatory compliance in partner countries have limited the ability of Indian
SMEs to fully leverage the benefits of these trade deals.
To maximize the potential benefits of FTAs, India needs a more strategic and
supportive policy framework that addresses the existing gaps. Key measures
could include:
1. Capacity Building and Awareness: Increasing awareness among SMEs
about the opportunities provided by FTAs, including simplified guides on
tariff benefits, compliance procedures, and export documentation, can
significantly enhance their participation. Government-led training
programs, workshops, and dedicated FTA help desks could empower
SMEs to navigate the complexities of international trade.
2. Improving Access to Finance: Limited access to export financing remains
a significant barrier for SMEs. Expanding credit guarantee schemes,
providing export subsidies, and enhancing the role of financial
institutions like the Small Industries Development Bank of India (SIDBI)
can help SMEs overcome financial constraints and compete more
effectively in global markets.
3. Simplification of Compliance Procedures: Streamlining customs
procedures, reducing bureaucratic red tape, and providing assistance in
meeting international quality standards can help Indian exporters,
especially SMEs, overcome non-tariff barriers. For instance, adopting
 digital trade facilitation measures like electronic documentation and
single-window clearances can improve the ease of doing business.
4. Strengthening Domestic Industries: To mitigate the adverse effects of
increased competition from imports, India should focus on enhancing
the competitiveness of its domestic industries. This can be achieved
through targeted investments in technology, innovation, and
infrastructure, as well as offering incentives for sectors that are
vulnerable to foreign competition.
5. Leveraging Digital Trade: Encouraging SMEs to adopt digital platforms
for international trade can open up new opportunities for market access.
Digital trade initiatives can help SMEs overcome traditional barriers by
enabling them to reach customers in FTA partner countries through e-
commerce and digital marketing.
In summary, while India's FTAs have played a vital role in boosting exports,
attracting investments, and integrating the country into global trade networks,
their benefits have been unevenly distributed. A more holistic approach is
needed to ensure that all sectors, particularly SMEs, can harness the full
potential of these agreements. By addressing challenges related to awareness,
compliance, financing, and competition, and by supporting domestic industries
through targeted policy interventions, India can enhance its economic
resilience and ensure that the gains from FTAs contribute to inclusive and
sustainable growth. This strategic alignment between trade policies and
domestic capabilities will be crucial for India as it seeks to strengthen its
position in an increasingly interconnected global economy.