A recent report by the Global Trade Research Initiative (GTRI) has examined various factors influencing India’s export performance. The report, released on Monday, highlights the disparities in tariff rates between India and its Free Trade Agreement (FTA) partner countries as a key issue. The GTRI report notes that Indian firms often opt out of using the FTA route for imports when the duties are already low. This decision is primarily due to the compliance costs associated with FTAs not being sufficiently offset by the tariff benefits.
For instance, the report points out that in the case of India’s FTA partners, many imports are subjected to zero or minimal Most Favored Nation (MFN) duties. In contrast, India’s higher import duties compared to its FTA partners create a unique dynamic. The elimination of these duties under FTAs gives products from FTA partner countries a price advantage in the Indian market, according to GTRI. The report also discusses India’s trade deficit with key FTA partners, including ASEAN, South Korea, and Japan.
It observes that since the implementation of these FTAs, India’s merchandise trade deficit with these partners has grown more significantly than its global trade deficit. Specifically, the deficits with ASEAN, South Korea, and Japan increased by 302.9%, 164.1%, and 138.2%, respectively, compared to a 81.2% rise in the global deficit. This analysis is based on a comparison of data from the pre-FTA period (2007-09) and more recent trade data (2020-22). Furthermore, the report indicates that India’s exports to these FTA partners have grown at a slower rate than its imports.
With ASEAN, for instance, exports increased by 123.9% while imports grew by 175.7%. Similarly, with Japan, exports rose by 56.4% against a 98.5% increase in imports, and with South Korea, exports grew by 89.1% compared to a 127.3% rise in imports. The GTRI report provides a detailed analysis of the trade dynamics between India and its FTA partners, highlighting the complex interplay of tariffs and trade agreements on India’s export sector.
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