India’s FTAs leading to increased imports

Since the mid-2000s India's free trade agreements have doubled to about 42 today. They have increased trade with FTA countries more than would have happened otherwise. Increased trade has been more on the import than export side, because India maintains relatively high tariffs and hence had larger tariff reductions than its FTA partners.

In case of the ASEAN FTA, the country has benefited on both sides of trade flows with a statistically significant 33 per cent increase in exports and 79 per cent increase in imports, the Economic Survey 2015-16 has pointed out.

The trade increases have been much greater with the ASEAN than other FTAs and they have been greater in certain industries, such as metals on the import side. On the export side, FTAs have led to increased dynamism in apparels, especially in ASEAN markets.

The overall effect on trade of an FTA is positive and statistically significant. The cumulative effect between the year of the FTA and 2013 on trade with ASEAN, Japan, and Korea is approximately equal to 50 per cent. India's increased trade with FTA countries is not due to diversion of imports from more efficient non- FTA countries.

On the import side, a ten per cent reduction in FTA tariffs for metals and machinery increased imports by 1.4 per cent and 2.1 per cent respectively, compared to other products from FTAs or all products from non-FTA countries.

In the current contest of slowing demand and excess capacity with threats of circumvention of trade rules, progress on FTAs, if pursues, must be combined with strengthening India's ability to respond with WTO-consistent measures such as anti-dumping and conventional duties and safeguard measures. Analytical and other preparatory work must begin in earnest to prepare India for a mega-regional world, says the Survey.