India has signed a new free trade agreement with four European nations that is predicted to bring US$100bn in investment into the country, according to Indian trade minister Piyush Goyal.
‘Watershed moment’
Reported by the BBC, the deal will ease trade between India and Switzerland, Norway, Iceland and Lichtenstein, which make up the European Free Trade Association (EFTA). It will lift tariffs across a range of industries as a non-binding condition for the EFTA investment, which will be made over the course of 15 years.
After nearly 16 years of negotiations, the India-EFTA Trade and Economic Participation Agreement (TEPA) will liberalise trade in manufacturing, pharmaceuticals, in addition to other industries. Indian prime minister Narendra Modi called it a “watershed moment” in a letter shared on X.
“The culmination of efforts to finalise an innovative, well-balanced trade deal that reflects our respective developmental aspirations is commendable. One of the most pioneering free trade agreements ever concluded between our countries, TEPA emphasises our steadfast fast commitment to shared prosperity.
“Despite structural diversities in many aspects, our economies possess complementarities that promise to be a win-win situation for all nations.”
Wiggle room
EFTA spokesperson Asdis Olafsdottir told the FT that it is hoped that the investment in India will create a million new jobs in the country. She noted that “tariff reductions by India are not dependent on investment by EFTA in India under the agreement.
“If the shared objectives are not reached, India has the possibility to suspend concessions 20 years after the agreement enters into force.”
Firms from EFTA nations will also have easier access to the Indian market in industries such as processed food and luxury goods. Duties on the largest EFTA export to India, gold, will not change.
UK wrangle
The UK, another non-EU European nation that has been negotiating a deal with India, continues to struggle to strike an agreement. Last week, the Guardian reported that UK negotiators were back in India in an attempt to find common ground on goods and services.
However, it is thought by some among the delegation that the Indian government administration are waiting for a new UK government to reset talks. It follows a visit by shadow business secretary Jonathan Reynolds last month to meet Goyal.
One sticking point for UK prime minister Rishi Sunak is a demand for Indian workers to be offered more visas while avoiding the need for national insurance contributions while they work in the UK. One official said:
“UK negotiators are hearing from India that they will get more out of Labour on visas and social security. That has been the impact of Labour’s trip to India.”
The IOE&IT perspective
Hemita Bhatti, head of policy at the Institute of Export and International Trade (IOE&IT), said the agreement should provide some encouragement for the UK in its search for a trade deal with India, but that the situations differed in important ways.
“India’s asks on social security contributions in the UK will be difficult to resolve,” she noted, adding that “EFTA’s relaxed visa requirements for Indian workers will put some pressure for the UK to do the same or go further.
“It’s important to note that the EFTA and UK are not like-for-like markets, and their trading relations are different with India. India has a trade deficit with EFTA countries, whilst the UK has a trade deficit with India.
“In a sense, this means that there is more incentive for the UK to not concede too much market access, as it is already quite liberalised for Indian goods and services compared to EFTA. There is also more scope for EFTA markets to offer up further market access compared to UK for Indian exports.”