Reassessing FTA and GVC policy in India

By Deepa Srivastava --
Thursday, 30 May, 2024

FTAs around the world are aimed at deeper integration and can become a powerful tool for inclusive and sustainable economic growth. India too, can do the same by empowering SMEs through enabling provisions. In the present-day paradigm of international trade, integrating small and medium-sized enterprises (SMEs) into global value chains (GVCs) have become increasingly significant.

On the contrary, there is negligible progress as there is lack of adequate industry and stakeholder consultation, and policy makers are unperturbed of the importance of trade agreements and facilitating the same into global value chains. Recent efforts to clinch a deal with UK before the poll code, got into jeopardy as Indian trade negotiators were wary of giving too many concessions.

In brief as per E&Y India has signed so far 13 free trade agreements(FTAs), all of which differ in their scope and nature. But the majority of these agreements have failed to produce their desired results and have contributed to India’s high trade deficit. Consequently, India’s imports from its FTA partners have increased more than its exports.

Lets get down to figures , India has registered 448,53,444 (on Udyam ) MSMEs (the Indian definition of SMEs), and they account for 30 percent of the Indian GDP. Despite their potential, SMEs struggle in international markets due to limited access to foreign market information, complex trade procedures, and resource limitations compared to larger firms. Free Trade Agreements (FTAs) can be vital in overcoming these challenges by creating a more level playing field for SMEs.

There is no denying that Geopolitical conflicts disrupts global supply chains and has heightened inflation contributing to increased trade costs which continue to impede international trade. However, India can swell its GVC share if it simplify its customs and trade procedures by employing MSMEs with global firms.The country is poised to grow as current global trends for GVC are under transition due to pandemic and strategic reasons, giving considerable opportunities for newer countries to capture greater market share. This shift in GVCs trend will continue in favour of emerging economies if they increase the number of lead firms, introducing more technology in their processes, easing business facilitation, and investing significantly in infrastructure.

Having said, it’s logical for the foreign investors and lead firms to trade with the country India as a more viable destination, having significant network of OEMs. Only if it incentivise the indigenous industrial supply chains besides continuously upgrading its logistics and infrastructure build.

Reassessing FTA and GVC policy in India. FTAs around the world are aimed at deeper integration and can become a powerful tool for inclusive and sustainable economic growth. India too, can do the same  by empowering SMEs through enabling provisions. In the present-day paradigm of international trade, integrating small and medium-sized enterprises (SMEs) into global value chains (GVCs) have become increasingly significant.

On the contrary, there is negligible progress as there is lack of adequate industry and stakeholder consultation, and policy makers are unperturbed of the importance of trade agreements and facilitating the same into global value chains. Recent efforts to clinch a deal with UK before the poll code, got into jeopardy as Indian trade negotiators were wary of giving too many concessions.

In brief as per E&Y India has signed so far 13 free trade agreements(FTAs), all of which differ in their scope and nature. But the majority of these agreements have failed to produce their desired results and have contributed to India’s high trade deficit. Consequently, India’s imports from its FTA partners have increased more than its exports.

Lets get down to figures , India has registered 448,53,444 (on Udyam ) MSMEs (the Indian definition of SMEs), and they account for 30 percent of the Indian GDP. Despite their potential, SMEs struggle in international markets due to limited access to foreign market information, complex trade procedures, and resource limitations compared to larger firms. Free Trade Agreements (FTAs) can be vital in overcoming these challenges by creating a more level playing field for SMEs.

There is no denying that Geopolitical conflicts disrupts global supply chains and has heightened inflation contributing to increased trade costs which continue to impede international trade. However, India can swell its GVC share if it simplify its customs and trade procedures by employing MSMEs with global firms.The country is poised to grow as current global trends for GVC are under transition due to pandemic and strategic reasons, giving considerable opportunities for newer countries to capture greater market share. This shift in GVCs trend  will continue in favour of emerging economies if they increase the number of lead firms, introducing more technology in their processes, easing business facilitation, and investing significantly in infrastructure.

Having said, it’s logical for the foreign investors and lead firms to trade with the country India as a more viable destination, having significant network of OEMs. Only if it incentivise the indigenous industrial supply chains besides continuously upgrading its logistics and infrastructure build.