Changing contours of India’s Free Trade Agreements (FTAs) : Daily Current Affairs

Date: 22/09/2022

Relevance: GS-2: India and its neighborhood- relations; bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Key Phrases: Free Trade Agreements (FTAs), Types of Trade Agreements, history of Free Trade Agreements in India, bilateral and multilateral trade agreements,


  • India and the United Kingdom are in the final phase of negotiations for the India-UK free trade agreement and India aims to complete the signing by October 2022 as per government sources.

Types of Trade Agreements

  • Free Trade Agreement (FTA):
    • In a free trade agreement two or more countries agree to provide preferential trade terms, tariff concessions etc. to the partner country.
    • India has negotiated FTA with many countries and trade blocs e.g. Sri Lanka, ASEAN.
  • Preferential Trade Agreement (PTA):
    • Here, two or more partners give preferential right of entry to certain products.
      • This is done by reducing duties on an agreed number of tariff lines.
    • Tariffs may even be reduced to zero for some products.
    • India has signed a PTA with Afghanistan.
  • Bilateral Investment Treaty (BIT):
    • It is a bilateral agreement where two countries decide the conditions for private investments by citizens and firms of the two countries.
  • Trade and Investment Framework Agreement (TIFA):
    • It is a trade pact between two or more countries which establishes a framework for expanding trade and resolving outstanding disputes between countries.
  • Comprehensive Economic Partnership Agreement (CEPA):
    • Partnership agreements or cooperation agreements are more comprehensive than an FTA.
    • CEPA covers negotiation on the trade in services and investment, and other areas of economic partnership.
    • India has signed CEPAs with UAE, South Korea and Japan.
  • Comprehensive Economic Cooperation Agreement (CECA):
    • CECA generally covers negotiation on trade tariffs and TRQ (Tariff Rate Quotas) rates only.
    • It is not as comprehensive as CEPA. ○ India has signed CECA with Malaysia.

Evolving free trade agreements

  • The free trade agreements (FTAs) as a trade policy tool are evolving to keep pace with new-age requirements.
  • In the old times the trade agreements meant merely exchanges of Customs duty concessions between partners.
  • The new age FTAs are considering the strategic requirements of the country and go beyond the exchange of trade concessions.
  • They are designed to enable a stronger position for India in the Global Value Chains (GVCs) and include several new components.

India’s FTA journey

  • India’s FTA journey started in 1975 with the Bangkok Agreement but duties were eliminated on substantial tariff lines for the first time in 1998, when India-Sri Lanka FTA was signed.
  • The ‘Look East Policy’ led to the signing of several agreements with East Asian countries.
  • By 2019, it was argued that India’s FTAs were more economically beneficial to its trading partners vis-a-vis India because these FTAs were unable to tackle non-tariff barriers.
  • India exited the 16-country Regional Comprehensive Economic Partnership (RCEP)
    • It claimed that the scope of the group had been widened beyond the original mandate and there were inadequate safeguards for Indian industries
  • Post Covid-19, India has been pushing for FTAs aggressively as it seeks investment, technology, IP, and a potential market for its goods and services, in exchange for access to its markets.
    • It has resulted in the signing of FTAs in quick succession with Mauritius, the UAE, and Australia.

The significance of new age free trade agreements

  • India is expected to conclude the UK agreement by Diwali and that with Canada by the end of this year.
  • These countries offer many of the factors that India needs to establish a dependable production capability serving both global and domestic markets.
    • With these FTAs, sectors such as gems and jewellery, engineering goods, agro-processed foods, textiles, technology, and financial services are likely to gain.
  • To achieve the $2-trillion export target by 2030, India’s active participation in global value chains (GVCs) is essential.
    • Today, 70 per cent of the global goods and services exports come from GVCs.
    • GVCs require close trade cooperation, lower duties, and efficient customs administration, which can be ensured by an FTA.
  • The inclusion of new-age areas like digital trade in FTAs will enhance cooperation and transform GVCs by lowering entry barriers, increasing transparency, and facilitating collaborative networks.

India-UK cooperation in strategic areas

  • Economic Engagements
    • Trade
      • UK is among India’s major trading partners and as per trade statistics of ministry of commerce and industry, India’s trade with the UK in 2017-2018 was US $14.497 billion.
    • Investment
      • The UK is the 4th largest inward investor in India, after Mauritius, Singapore and Japan.
      • The cumulative equity investment of the UK stands at $26.09 billion (April 2000-June 2018), accounting for around 7% of all foreign direct investment into India.
      • India continued to be the third largest investor in the UK and emerged as the second largest international job creator with Indian companies having created over 110,000 jobs in the UK.
  • Science and Technology
    • Joint investment in UK-India research has grown from less than £1 million in 2008 to over £200 million.
    • A India-UK Clean Energy R&D Centre with a focus on solar energy storage and a collaborative R&D programme in energy efficient building materials were announced.
    • New research partnerships worth £80 million including a new Joint Strategic Group on Antimicrobial Resistance (AMR) with a joint investment of up to £13 million have also been established.
  • Defense
    • In 2015, the two countries agreed to elevate their defense relationship by establishing capability partnerships in strategic areas.
    • The institutionalized dialogue to discuss defense cooperation viz. Defense Consultative Group Meeting is held annually at the Defense Secretary level.
    • Ajeya Warrior (army-to-army biennial exercise), the Konkan (joint navy-to-navy annual exercise) and the Indradhanush (joint air-to-air exercise) happen between India and UK.

India-UK FTA: opportunities are plenty

  • Regional balance
    • Britain is tilting to the Indo-Pacific, where India is a natural ally.
    • India, whose neighborhood is transformed by the rise of China, needs as wide a coalition as possible to restore a semblance of regional balance.
  • Trade, Investment & Jobs
    • India-UK trade was worth £23 billion in 2019, and both countries want to double the figure by 2030.
    • Almost half a million jobs are supported across India and the UK through investments in each other’s economies.
  • Market for British goods
    • A free trade deal between the UK with India - the world’s largest democracy, fifth biggest economy, a nation of 1.4 billion people will create a huge market for British goods like whisky, cars and services.
  • Benefits for Businesses
    • A trade deal with India will break down barriers and make it easier for British businesses to secure more investments, higher wages and lower prices in Britain.
  • Skilled Labour Access
    • India will be looking for concessions on Indian skilled labour accessing UK markets.
  • Defense Strengths:
    • Britain could also contribute to the strengthening of India’s domestic defense industrial base.
    • The two sides could also expand India’s regional reach through sharing of logistical facilities.

Trade facilitation is the way forward

  • The new age free trade agreements are based on reciprocal economic benefits and enhanced trade facilitation ,India can resort to ways which will facilitate smoother trade
    • India needs to improve the efficiency of ports, shipping, Customs, etc., via automation which would be a big boost for participation by MSMEs.
    • Developing alternative sources of supply in which all the components are available in the vicinity and locally.
    • India must look at a hybrid model to source from the most efficient suppliers, including domestic players.
    • The new-age FTAs demand more holistic and diversified trade opportunities with trade in services, e-commerce, labour, climate/environment, digital trade, public procurement, supply chains etc.


  • The new agreements with the UK and the EU have more modern elements of trade facilitation.
  • India is expressing its understanding of these changes and adopting the elements that drive the modern economic trade order.
  • Therefore the success of these FTAs will largely depend on the way domestic rules and regulations are tweaked to facilitate the implications of these FTAs.

Source:  The Hindu BL

Mains Question:

Q. An India-UK free trade agreement has the potential to give a major thrust to Indian exports in labour intensive sectors, Comment. How could India leverage the FTA for its growth and economic development especially in the aftermath of Covid-19 and Brexit? (250 words).