India is all set to sign a trade agreement with the four nation European Free Trade Association (EFTA), an intergovernmental grouping of Iceland, Liechtenstein, Norway and Switzerland, on Sunday. The pact likely builds in a plan to attract $100 billion in investment over the period of 15 years and diversify imports away from China. The Indian Express explains the significance of the deal for India.
Why is the timing of signing crucial for India?
Over 64 countries, including India, are headed into elections, which could mean a long pause in free trade agreements (FTAs) for India and its trade partners. However, time is running out as the global supply chain is fast undergoing a reset with investment, for the first time in recent past, moving away from China.
While India is seen as a top contender by global inventors, Asean nations led by Vietnam and North America nations like Mexico are also emerging as favorable investment destinations. A delay in streamlining investment flows and renewed attempts at global integration may turn out to be a missed geo-political opportunity.
While India-EFTA trade deal is ready to be inked, major deals such as India’s FTA with UK and EU still run the risk of political uncertainty.
Why did India push for investment commitment in the EFTA deal?
India runs a trade deficit with most of its top trade partners, except for the US. This is also true in case of FTAs that India has signed in the past, especially with Asean nations. While the Asean FTA did help India secure intermediate products, India’s increasing average tariffs (18 per cent) has meant that India’s FTA partners end up having better access to the Indian market after tariff elimination. Average tariffs in developed nations hover around 5 per cent.
The India-EFTA deal is also expected to widen the trade gap. Even as the legality of the $100 billion investment commitment by EFTA remains unclear, such investment could help India generate economic activity and jobs in exchange for giving market access to EFTA.
Moreover, India could see gains in the services sector and the deal could help India power its services sector further.
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Which Indian sectors could EFTA investment benefit?
The funds from the EFTA region include Norway’s $1.6 trillion sovereign wealth fund, the world’s largest such ‘pension’ fund, which posted a record profit of $213 billion in 2023 on the back of strong returns on its investments in technology stocks. The Indian Express earlier reported that India could see investment flow into the pharma, chemical sectors, food processing and engineering sectors. Government officials said that EFTA is also looking at joint ventures (JVs) in the above-mentioned sectors that will help India diversity imports away from China. Currently, India’s imports of chemical products from China in FY23 alone stood at a massive $20.08 billion. It imported $3.4 billion worth of medical and bulk drugs worth nearly $7 billion from China, as per commerce and industry ministry data.
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