Across 2021 and 2022, India signed three free commerce agreements (FTAs) with Mauritius, the United Arab Emirates and Australia. India’s FTA negotiations with the European Union and the United Kingdom are additionally at a sophisticated stage.

These FTAs have appreciable significance for the Indian financial system because the nation aspires to grow to be a pacesetter within the international commerce ecosystem by attaining an export goal of US$2 trillion by 2030.

FTA companions are anticipated to assist India improve its exports by providing preferential and simpler market entry for Indian items and companies. India ought to use FTAs as not only a device to extend commerce however a way to induce international direct funding (FDI) inflows.

FTAs work properly with FDI inflows when the concerned economies have contrasting relative endowments and are at distinct stages of development. Conversely, FTAs and investments might conflict when accomplice international locations share related endowments and are vying for a similar FDI. India’s financial growth and endowment are in sharp distinction to all its FTA companions, particularly those that have signed agreements between 2021–2024.

After attaining a big quantity of FDI inflows, India has been experiencing a gradual decline within the latter half of 2023. In 2022–2023, FDI inflows to India declined to US$71.3 billion from US$84.8 billion in 2021–2022. The decline continued till the second quarter of the 2023–2024 monetary yr. India’s rank declined from seventh in 2022 to eighth within the 2023 UN Conference on Trade and Development World Investment Report. India must undertake measures that may assist it retain an growing development of FDI inflows.

India’s proposed FTA companions, such because the European Union and United Kingdom, are important sources of international funding. The United Arab Emirates and Australia are additionally thought of influential traders worldwide. India ought to leverage its FTAs to safe increased FDI inflows.

India goals to grow to be a producing hub and has undertaken varied measures to extend its output. But it has rapidly realised that home companies will discover it difficult to attain the goal output improve alone and invited international gamers to put money into India. India might leverage its shut financial ties with FTA companions and affect them to speculate — doubtlessly providing particular incentives to traders from FTA accomplice international locations.

The nation might also capitalise on the growing reputation of the China Plus One technique to woo traders in search of various locations to arrange their manufacturing crops. India ought to seize the chance by constructing its capability and increasing provide chains to grow to be a dependable various to China in international commerce.

An FTA is a wonderful platform for this goal. If India can provide an alluring deal, many European and UK-based companies with manufacturing bases in China might discover India a extra profitable choice after the FTAs are finalised.

India depends closely on China for a lot of of its imports, starting from candles to telecommunication and digital items. India’s commerce deficit with China stays alarming and regular. In 2022–2023, India’s commerce deficit with China elevated to US$263 from US$191 billion in 2021–2022. There is an pressing have to diversify India’s import sources, significantly for vital items. FTA companions can play a vital position in serving to India scale back its import dependence on China by providing a resilient supply for the provision of products.

Despite India’s efforts, its participation in international worth chains stays restricted, with a share of world merchandise exports of lower than 2 per cent. India’s participation in international worth chains is concentrated in a couple of industries, comparable to cars, prescribed drugs and cell phones. Increased participation in international worth chains can result in financial progress, increased productiveness, job creation and improved dwelling requirements.

India’s FTA technique should shift to recognise that FTAs are essential instruments for integrating into international worth chains and attracting investments. To obtain this, India’s FTAs have to be redesigned to attain deeper financial integration and broaden the scope of commerce liberalisation. This would require rigorously choosing accomplice economies that align with India’s strategic objectives and financial priorities.

The financial system has lengthy suffered from the ‘jobless growth’ phenomenon, by which the growing labour force is struggling to safe employment whilst GDP continues to rise. The unemployment charge has persistently elevated during the last 20 years from 2 per cent in 2010 to six.1 per cent in 2018. Securing funding, particularly in labour-intensive sectors, would assist India curtail unemployment. India may safe higher entry for its companies exports within the FTA accomplice’s market.

Although India has made important progress by holding the fortieth place within the 2023 Global Innovation Index, its general analysis and innovation setting is relatively poor. India’s manufacturing progress in sectors comparable to cell phones, prescribed drugs and cars has been restricted to assembling ultimate merchandise or producing items which can be on the decrease finish of the worth chain.

The major purpose for this low innovation index is that analysis and growth bills in company housing are minimal or very low. There must be extra effort from authorities companies to encourage innovation in India. As India is negotiating an FTA with developed areas such because the European Union, that are far more superior when it comes to analysis and growth and innovation, it might leverage its power to safe funding in these actions.