India and European Free Trade Association (EFTA)

India and European Free Trade Association (EFTA)

GS-2: IR

(UPSC/State PSC)

Important for Prelims:

EFTA grouping, Trade and Economic Agreement (TEPA), Regional Comprehensive Economic Partnership (RCEP), Israel–Palestine war and Russia–Ukraine war.

Important for Main Exam:

About EFTA, FTA between India and EFTA countries, Significance, Way forward, Conclusion.

Context:

At a time when global trade and exports are in a challenging situation amid global economic slowdown, Israel-Palestine war and Russia-Ukraine war, the importance of Free Trade Agreements (FTAs) has increased for India to increase global trade and exports.

  • In this context, the recently signed Free Trade Agreement (FTA) between India and the European Free Trade Association (EFTA), a group of four European countries, to promote investment and two-way trade in goods and services is extremely important. This is called the Trade and Economic Agreement (TEPA). After this trade agreement, many countries including Peru, Oman, Britain and the European Union (EU) are seen taking forward the negotiations for a trade agreement with India.

Free Trade Agreement:

  • A free trade agreement is an arrangement between two or more countries where they agree to eliminate or reduce customs duties on goods traded with the partner country.
  • Ten to thirty subjects are included under these agreements. More than three hundred and fifty FTAs are currently in force in the world.

FTA between India and EFTA countries:

  • Recently, the FTA signed with India and EFTA countries has become a topic of discussion in the world.
  • India and EFTA countries were negotiating a trade and investment agreement for more than fifteen years. After about thirteen rounds of talks, the talks came to a halt at the end of 2013. After this, talks started again in 2016 and after four rounds of talks, this agreement has now come to the ground.
  • It is noteworthy that under the new FTA, EFTA has committed to invest 100 billion dollars in India in the next fifteen years.
  • This is India's first trade agreement with a group that includes developed countries.
  • India's exports to EFTA countries during 2022-2023 were $1.92 billion. India's total imports from these countries during the financial year 2022-23 were $ 16.74 billion. That means trade deficit was 14.82 billion dollars.

Areas of agreement:

  • The agreement covers trade in goods, rules of origin, research and innovation, intellectual property rights (IPR), trade in services, investment promotion and cooperation, government procurement, technical barriers to trade and trade facilitation.
  • In return, India will also reduce its import duties on various goods from these countries. Although agriculture, dairy, soya and coal sectors have been kept away from this trade agreement. Also, the Indian market has not been opened for the sectors related to the Production Linked Incentive (PLI) scheme.

Regional Comprehensive Economic Partnership (RCEP):

  • ‘Regional Comprehensive Economic Partnership’ (RCEP), which came into existence on November 15, 2020, is the world's largest trade agreement. India did not join this agreement due to the security of its economic and business interests.
  • With new thinking and possibilities, India is moving rapidly on the path of free trade agreements with major countries of the world, giving a new turn to its foreign trade policy.

Significance:

  • FTA done with EFTA countries will play an important role in increasing India's exports.
  • Through this, India and EFTA countries will complement each other economically.
  • EFTA countries will invest in India in the fields of green and wind energy, pharma, food processing, chemicals as well as high quality machinery, which will also reduce our imports in these sectors and help in increasing the quality of Indian products.
  • This will make it easier for Indian exporters to access the big market of Europe. With this, EFTA countries will also get access to India's big market.
  • Indian companies will try to diversify their supply chains by making them more aggressive. On the other hand, EFTA will attract more foreign investment to India and help it better utilize its economic potential and create additional employment opportunities.
  • This will create one million direct jobs in India. In this, emphasis is given more on investment than trade.
  • Switzerland's share in India's total trade with these four European countries is more than ninety percent and the rest includes the other three countries.
  • This agreement will make it easier for India to access the markets of these four countries in areas like digital trade, banking, financial services, pharma, textile.

About EFTA:

  • It is an inter-governmental organization to promote and accelerate free trade. It was established as an alternative for countries that did not want to join the European Community. It is noteworthy that EFTA countries are not part of the European Union (EU).
  • Member Countries: EFTA member countries include Iceland, Switzerland, Norway and Liechtenstein.
  • All these countries are open, competitive economies committed to progressive liberalization of trade in the multinational sector as well as free trade agreements.

Way forward:

  • In such a situation, many developed and developing countries of the world are eager to make free trade agreements with India. The Indian economy appears to be gaining economic wings. India is growing rapidly due to domestic structural reforms, manufacturing, global economic chain, investment in infrastructure and increasing dependence on green energy.
  • India has the world's largest youth population, largest skill training campaign, growing service sector, growing exports and the economy's ability to recover from external shocks can become the foundation of building a new India. With NRIs continuously sending more money to India every year, assistance to India for technological development has increased.
  • It should be expected that the way FTAs made with Australia and UAE are proving beneficial in terms of increasing exports to India,
  • Similarly, the new agreement signed with EFTA countries will also prove to be a milestone in increasing exports and global trade.
  • It is expected that after EFTA, FTAs with Oman, Britain, Canada, South Africa, America, Israel, Gulf Country Council and European Union can also be finalized soon.

Conclusion:

  • The India-EFTA trade agreement symbolizes the commitment to free, fair and equitable trade. This is sending a message to the world that India's doors are rapidly opening for global trade and business.
  • At a time when the global economy is surrounded by recession and growth rate challenges, then after achieving the title of highest growth rate in the world, India is moving forward with the strategy of fast pace of investment, exports, employment and development in the coming years through free trade agreements.

Source: Jansatta

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Mains Question:

Discuss the significance of India and EFTA agreement.