It’s The Geopolitics, Stupid

Context: GoI’s new view on FTAs may underline the linkage between trade and foreign policy objectives.

Criticisms against India’s FTA policy

• Led to increase in imports than exports: The Economic Survey 2015-16 concluded that while FTA/ PTAs had helped increase India’s overall foreign trade, they had contributed more to an increase in imports than an increase in exports.
• Policy of trade pessimism since 2014: Gradual withdrawal from FTA-centric global engagement and recent endorsement of aatmanirbharta strategy.
• Underlying non-competitiveness of Indian industry: As evident from their attempts to lobby against FTAs and spread protectionism.
• Geopolitical dimension:
  • One criticism of the old FTAs, especially those with ASEAN, Japan and South Korea, was that geopolitics had stumped economics.
  • While diluting its Act East Policy and opting to stay out of the ‘China-led Regional Comprehensive Economic Partnership (RCEP) agreement, India seems to be ‘Looking West’ once again with both trade and geopolitics in mind.
    • Recent shift: Recent interest in Looking West, resuming long interrupted discussion on EU-India FTA and readiness to begin talks with Australia, Britain and Canada for bilateral FTAs or PTAs does carry its own geopolitical weightage.

Way forward

• Dump protectionism: India will lose huge opportunities if it keeps out of FTAs, and Indian companies should aim to become globally competitive instead of adopting a protectionist stance.
• Play the PTA game: The results of the preliminary analysis suggest that Indian PTAs do increase trade without apparently leading to inefficient trade.