India's rising number of free trade agreements signals a commitment to more open markets, but the question remains whether such deals will smooth the way for Asia's third-largest economy to sign a global trade pact. Against the backdrop of the stuttering Doha world trade talks and the global economic slowdown, the Indian government has pushed ahead with smaller, more manageable deals with the likes of Thailand, South Korea and the Asean bloc of nations.
New Delhi is also eyeing pacts with big hitters such as the European Union, to whom Indian exports jumped 29 percent from the previous year to $34.5 billion in 2007-8, according to Indian government data. But Doha remains the biggest prize at a time when the financial crisis has smothered exports and raised the spectre of a return to protectionism.
There are fears preferential one-on-one deals could entangle countries such as India and shrink their bargaining power in a Doha deal, still stuck after eight years. But for India, the government says it's so far, so good. "(FTAs) will not really create handicaps for us, they don't constrain our position," P.K. Dash, a trade ministry official involved in FTA negotiations, told Reuters.
"We believe it is in line with our issues in the multilateral forum." Critics in rich countries blamed India for the collapse of the Doha talks last year in a row over farm and industry tariffs. India has since made optimistic noises about reaching a deal, and a gradual lowering of barriers through FTAs could actually help prepare a country historically cautious about freeing its markets for a global pact.
"Sometimes these FTAs also serve as what you might call an immunisation or inoculation," said Rajiv Kumar, head of the Indian Council for Research on International Economic Relations. "The real benefit to India comes along in terms of making India more open and less protected." India's free trade pacts are part of a wider trend that has pushed Asia to the forefront of FTA activity, according to a 2009 Asian Development Bank paper. Between 2000 and June 2009, the sum of concluded FTAs in Asia jumped from three to 54, with another 78 under negotiation or proposed, the paper said.
Manab Majumdar, foreign trade division of India's main business lobby, FICCI, said a rise in trade with Sri Lanka and Singapore after FTAs were signed was proof that, so far, companies were making use of the deals. India's trade with Singapore totalled $15.5 billion in 2007-2008, up from $11.5 billion in 2006-7. "We remain strongly committed to Doha, but that doesn't imply we stop signing those preferential agreements," Majumdar said.
Analysts say FTAs help countries such as India build political ties and influence, especially with a wary eye on fellow emerging giant, China. "FTAs have also taken on political, strategic significance. Earlier it was purely economic, " Rajiv Kumar said. "Once you sign an FTA, it takes on connotations beyond trade." "India signed an FTA with Asean, simply because Asean signed an FTA with China," he added.
India's Congress party-led government, which won a second term this year on a platform of inclusive growth for its hundreds of millions of poor, has already got a taste of a possible backlash against its growing taste for free trade. A recent protest in the southern state of Kerala drew what organisers said were hundreds of thousands under threat from India's pact with Asean, which comes into effect in 2010.
The government says the protesters' concerns had already been met. With exports down for 11 straight months and its share of global trade at less than 2 percent, India has committed to the conclusion of Doha by the end of 2010. FTAs are "no substitute for the multilateral trade agenda," Rajiv Kumar said. "To the extent that it takes your negotiating capital away, to do these sorts of things, it's a distraction."
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