13 Jan Free Trade Agreements
Free Trade Agreements
The topic talks about how the Free trade agreement impacts the Indian Economy.
Relevance for Prelims: About FTA, FTA in news
Relevance for Mains: Utility and back draws of FTA’s
Why in News?
Recently, India has been in talks with many countries to sign a Free Trade Agreement.
About the Free Trade Agreements
Free Trade Agreements are agreements between one or more than two countries where they decide to reduce or bring down the tariffs imposed by them. Recently, it has been noted by many economists that many FTA signed by India has not turned out beneficial for them.
REASONS FOR ADVERSE RESULT OF FTA’S SIGNED BY INDIA
- Asymmetric Benefit: A report by the Asian Development Bank observed that India utilizes the potential of its FTA to a very low extent which is the lowest in Asia. (2-25%).
- Limited Export Growth in Value-Added Sectors: Out of 21 sectors, India suffers Trade Deficit in 13 sectors. Growth in value-added sectors has been very sluggish.
- Misuse of FTAs: Many countries like China have misused the FTAs signed by India with ASEAN. Example: Exponential Rise of Electronics from Vietnam and Myanmar which are routed from China. This is known as the Circumvention of Rules of Origin.
- Non-Tariff Barriers: Barriers like phyto-sanitary controls restrict the quantum of sales and growth of India’s economy.
- Domestic Elements: High logistics costs and difficulty in doing business are among a few reasons for the low utilization of FTAs.
Strengthening the Rules of Origin Mechanism and starting negotiations on existing FTAs is the need of the hour. The current global dynamics make a perfect case for India to relook at its FTAs through a new lens.
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