Modi’s fast-growing India ‘pulling out all the stops’ to edge out China as supply chain leader
- Modi is using India’s growing appeal as the world’s fastest-growing major economy and alternative to China for global supply chains to clinch free trade pacts
- In a departure from its protectionist past, India is embracing trade deals in a bid to cash in on shifting global trade alliances
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India has now signed four FTAs in quick succession since 2021 after a gap of about nine years when no agreements were signed. The latest pact with the European bloc of countries, known as the European Free Trade Association, or EFTA, was hailed by Modi and comes just weeks before elections in which he’s seeking to extend his decade in power.
Negotiations with the UK and Australia are likely to culminate after the Indian elections in April-May, while talks with Oman have already concluded and an agreement may be signed as soon as this month, people familiar with the matter said, asking not to be identified because the negotiations are private.
The hope is that such deals will give a level playing field to India’s textiles sector, which comprise more than 14 per cent of the nation’s annual exports, employs more than 45 million people directly, and contributes more than 4 per cent to gross domestic product. Marine goods, auto and machine parts, chemicals, leather and footwear and gems and jewellery products are also poised to benefit.
To seize that opportunity, the South Asian nation must plug infrastructure gaps and improve the ease of doing business by cutting down on over regulation, taxation and red tape. “Delhi is pulling out all the stops. They know they must fix this,” Capri said.
By integrating into global value chains, India can create 80 million jobs by 2030, according to a government report.
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The services sector, which makes up more than half of the nation’s GDP, is also expected to get a fillip. The trade deals will help India secure easier access for professionals in sectors including IT, health and accounting.
Tim Ayres, Australia’s assistant trade minister, said early results from the interim trade deal showed strong outcomes for businesses and noted the two nations are working toward phase two.
Yet for all that enthusiasm, roadblocks remain. India and the UK still haven’t resolved differences on issues including investment protection, social security agreements and market access for British apples and cheese.
Non-Tariff Barriers
At home, there are pockets of resistance too. For instance, the confederation of Indian alcoholic drink companies has expressed concern over opening up the market without getting reciprocal treatment.
Vinod Giri, director general of the association, said while most of the focus of trade talks has been duty concessions, non-tariff barriers such as maturity requirements for whiskey in the UK and Europe have made Indian beverages uncompetitive.
Giri said the UK law requires whiskey be matured for a minimum of three years, whereas in warm climates like India’s, whiskey matures 3-5 times faster than in the colder climates of the UK and EU.
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And many are still finding it difficult to do business in India. While there’s a rise in the number of companies mentioning India or Indian investment on earnings calls, that doesn’t always translate into commitments, said Deborah Elms, head of trade policy at the Singapore-based Hinrich Foundation.
“In many cases, the obstacles to investment or development on the ground in India remain significant,” she said. “These gaps are creating problems for businesses, which means that the positive story around Indian prospects might not be delivered.”
India’s government is aware of the challenge. It’s helping states simplify rules, decriminalising minor offences and repealing redundant laws. The government has also come out with a single window system to speed up the process of getting approvals and clearances needed by investors while cutting compliance burdens.
For Matrix’s Nair, he’s also tempering his optimism. Companies are wary, “because we have been waiting for a long time for the deals to happen,” he said.