Credit: DH ILLUSTRATION
On March 10, India signed the Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association (EFTA) countries -- Iceland, Liechtenstein, Norway and Switzerland. It took 21 rounds of negotiations over a period of 16 years to finalise this free trade agreement (FTA), which is likely to come into effect in 2025, once the governments of the five countries ratify it. Prime Minister Narendra Modi has called it “a landmark pact” and his European counterparts have also expressed similar excitement.
The India-EFTA TEPA is significant for two reasons. First, this is the first time that India has signed an FTA with four developed European countries. The deal fits into the West’s ‘China Plus One’ agenda and advanced western nations, because of shifts in global geopolitical alliances, are now interested in tapping into the Indian market and diversifying their supply chains. India, being EFTA’s fifth-largest trading partner as of 2023, with $25 billion in two-way trade, utilised the moment to clinch the agreement.
Second, it points to an attitudinal shift in India’s trade policy. While successive governments have followed the tenets of liberalisation through financial, labour and ‘ease of business’ reforms over the last three decades, India is still known for its relatively more protectionist stand. Over the last decade, for instance, India terminated 76 bilateral treaties, floated a new model treaty to renegotiate them in order to avoid disputes with foreign investors at international arbitration, stepped back at the last minute from joining the Regional Comprehensive Economic Partnership, and imposed maximum import restrictions. The TEPA with the EFTA, therefore, appears to be an image makeover exercise that the Modi administration needed, particularly at a time when other FTAs -- with the EU, UK and Canada -- are still in the pipeline, and a general election is knocking on the door.
FTA is the new mantra of Indian trade policy. It is often argued that FTAs will help in expanding India’s export basket, draw investments and create jobs. In return, the Indian offer to the world is its vast market. Advocates of the TEPA, for example, are highlighting that the EFTA countries are now “legally bound” to invest $100 billion in the next 15 years in India, which is supposed to create a million jobs, bolster the ‘Make in India’ initiative, foster labour mobility, and boost two-way trade and market access due to tariff cuts on a range of goods such as pharmaceuticals, machinery, chemical products, basic and processed agricultural products, fish, medicines, watches, wines, among others. It is expected that EFTA sovereign funds (such as the Norwegian Sovereign Wealth Fund) will make big investments in India and Swiss transport companies would want to investin Indian Railways.
There is, of course, another side to this rosy story -- the real scenario. First, India’s “mad rush” to enter into FTAs, as farmers’ leader Vijoo Krishnan pointed out, is an outcome of the Modi administration’s submission to “the idea of neo-liberal economic policies that they are pursuing at the behest of the International Monetary Fund and WTO.”
The confidence that the size of the Indian market will make sure that the world offers substantial trade concessions to India can be a misplaced one. For example, economist and trade expert Prof Biswajit Dhar observed that “the carrot is the promise of $100 billion investment” which made India sign the TEPA with EFTA, but this promise is unrealistic. Moreover, analysis by NITI Aayog shows that past FTAs with ASEAN, Korea, Sri Lanka and Japan have resulted in more imports from partner countries than exports by India, thus increasing India’s trade deficit.
Second, experts have repeatedly warned that FTAs between economically unequal partners, say a developed and a developing country, end up in unequal deals. A sovereign nation must have the right to levy tariffs on goods and services and make trade restrictions to safeguard the interests of its people, particularly farmers, fisher people, and small and medium enterprises. Farmers’ organisations in India, for instance, have vehemently opposed the TEPA with EFTA arguing that small farmers (particularly dairy and coffee farmers), fishers and fish-workers will be adversely affected by this unequal pact. In fact, a considerable section of farmers in India demand the nullification of all existing FTAs to ensure food security. Furthermore, as analysts have noted, the unequal deal is likely to impact the tariff-free entry of Indian industrial goods and farm produce to countries like Switzerland because of “quality standards” and other requirements.
Finally, FTAs have been secret deals in India and lack transparency. This is a grievance from all stakeholders, be it corporates or farmers. The corporates complain that “the lack of adequate industry and stakeholder consultation during the negotiation process” is the reason behind India’s slow progress on FTAs. The more serious criticism comes from trade unions. For instance, the All-India Kisan Sabha, the largest farmers’ organisation in the country, stated that the FTAs (such as the TEPA), which have serious implications for agriculture and other sectors, are being signed by the Government of India without any “consultation with states or any discussion in Parliament.” This is not only a gross violation of transparency and accountability, but also antithetical to the federal principles of Indian democracy.
On March 14, four days after the TEPA was signed, farmers and workers held the Kisan Mazdoor Mahapanchayat, led by the Samyukta Kisan Morcha (SKM), in the national capital, New Delhi. In its press release, the SKM stated that it “strongly protests against the surrender of the Modi government before the developed European countries and sign(ing) the …Free Trade Agreement.” The FTA, the statement asserted, will erode the “strength of small producers in sensitive areas that provide livelihood for crores of farmer and worker families and will destroy our home market and the people’s livelihood massively.” The question is: is the government listening?
(The writer is Senior Research Associate, Centre for Financial Accountability, New Delhi)