India Seeking Early Harvest Agreements, FTAs with Multiple Trade Partners in 2022

Posted by Written by Melissa Cyrill Reading Time: 9 minutes

India is pushing for more FTAs with multiple countries and regional blocs as it chases an ambitious export target of US$450-500 billion by next fiscal. It is also aggressively seeking trade concessions with major economies like the US.

India has been talking free trade agreements with several partners – both bilateral and regional – over the past two years in a bid to boost export-oriented domestic manufacturing. New Delhi is looking at an ambitious export shipment target of US$450-$500 billion by FY22, against US$291 billion in FY21 – which is why early harvest deals and full free trade agreements (FTAs) have assumed newfound importance to an otherwise trade conservative regime. Indian exports touched US$197.89 billion in the period from April to September 2021, up 57 percent from the same period in the previous year.

The growing list of countries and regional blocs negotiating trade deals with India now include Russia, Oman, and the Southern African Customs Union, which consists of Botswana, Lesotho, Namibia, South Africa, and Swaziland. Besides them, India hopes to conclude trade agreements with the UAE, UK, and Australia by as early as 2022; it is reportedly close to signing early harvest agreements with the three countries.

In multiple public addresses, the Indian commerce and industry minister, Piyush Goyal, asserted that India fully supported free trade within a rules-based multilateral trading environment. However, if India faced unfair treatment, it would reciprocate. Goyal has also called upon the ASEAN bloc to do away with its non-tariff barriers, saying that equitable trade between the two regions would see trade flows worth US$200 billion. India is keen on ASEAN reducing its restrictions on the agriculture and automotive sectors as well as reciprocating its FTA concessions. These concerns are also why India walked away from the Regional Comprehensive Economic Partnership (RCEP) in November 2019.

In the following sections, we spotlight developments in India’s economic and commercial ties with the regions with whom it is currently negotiating free trade arrangements or seeking trade concessions.

India, US to discuss IPR challenges, market access for agricultural products

US Trade Representative Katherine Tai in her two-day visit (November 22-23, 2021) is expected to ask for greater agri market access while Indian officials will bring up the difficulty of securing intellectual property rights in the US – among other issues.

Reviving the Trade Policy Forum (after four years) could be a way for the two sides to make progress on such bilateral concerns. Tai, the US’ chief trade negotiator will be meeting Indian commerce and trade minister Piyush Goyal during her visit. 

The US wants duty cuts on exports of its pecans, walnuts, and almonds. It also wants India to import US cherries and alfalfa hay. Meanwhile, India wants US market access to sell pomegranate arils, bovine meat, and grapes, besides easier norms to export pomegranates and mangoes.

During her visit, Tai said: “At USTR, we hear frequently from our stakeholders, on issues such as market access restrictions, high tariffs, unpredictable regulatory requirements and restricted digital trade measures. These are the issues where we intend to make progress and they will be on top of my list while I am here.

Other pending issues, as reported in the media, include penal tariffs on Indian steel, market access for medical equipment and dairy from the US, India’s digital tax, and non-tariff barriers in both countries.

Indian goods exports to the US in FY 2020-21 were US$51.6 billion while imports were US$28.8 billion.

India-Russia 2+2 dialogue, summit in the works

India and Russia is set to hold their first 2+2 dialogue (defense and foreign ministers) in Moscow mid-November, to be potentially followed by an annual summit in December. India’s outgoing Ambassador to Russia, D.B. Venkatesh Varma, has said that several agreements pertaining to defense, economic, trade, and science and technology domains are expected to be signed at the summit. According to Varma, India is considering major projects in the energy sector and long-term arrangements for coking coal and fertilizers. The value of defense contracts has also gone up from about US$2-3 billion dollars a year in 2018 to about US$9-10 billion dollars.

Russia and India have also been discussing India’s linkage with the Eurasian region by establishing an India-Eurasian Economic Union (EAEU) free trade zone. Moreover, the International North South Transport Corridor (INSTC) offers a cheaper and faster alternative multimodal transit corridor for India-Russian trade as the route connects India with Nordic Europe, Central Asia, Russia. The INSTC is expected to eventually touch the Baltic and Arctic regions.

As per Indian embassy figures, Indo-Russian bilateral trade during April 2020-March 2021 amounted to US$8.1 billion. Indian exports were valued at US$2.6 billion while imports from Russia were worth US$5.48 billion. As per Russian figures, bilateral trade in the same period amounted to US$9.31 billion, with Indian exports worth US$3.48 billion and Russian imports amounting to US$5.83 billion.

India-South African Customs Union preferential trade agreement talks revived

In July 2020, India revived talks with the SACU bloc for a preferential trade agreement (PTA). In a virtual meeting between the two sides, India emphasized its close engagement with the Southern African region. In 2019-20, India’s trade with Africa stood at US$66.7 billion, out of which India-SACU trade amounted to US$10.9 billion. Currently, the trade balance favors SACU showing its beneficial access to India’s market. However, there remains significant scope for greater trade.

India is seeking closer manufacturing and industrial investment ties with Namibia, and its sectors of interest cover agriculture, irrigation, renewables, ICT, pharmaceuticals, and medical supplies. India-Namibia trade in 2018-19 amounted to US$135.92 million with Indian exports worth US$82.37 million and imports valued at US$53.55 million. Namibia holds rich deposits of uranium, diamonds, copper, phosphates, and other minerals while India’s advantage lies in its capabilities in IT, engineering, pharma, railways, as well as its large SME (small and medium enterprise) sector.

India-South Africa bilateral trade was worth US$10.584 billion in 2018-19. Indian exports to South Africa include auto and auto components, transport equipment, drugs and pharmaceuticals, engineering goods, footwear, dyes and intermediates, chemicals, textiles, rice, gems and jewelry, etc. South African exports to India include goal, steam coal, copper ores and concentrates, phosphoric acid, manganese ore, aluminum ingots, and other minerals.

India-Oman trade and investment seek further boost

On October 9, India stated that it was looking to sign an FTA with Oman. Bilateral trade between Oman and India stood at US$5.931 billion in FY 2019-20, while bilateral trade in 2020-21 (April 2020 to February 2021) amounted to US$4.63 billion. Omani-India trade benefits from the fact that Oman’s ports are five days shipping time from India’s western coast.

There are reportedly over 4,000 India-Oman joint ventures (JVs) in Oman with an estimated investment of over US$7.5 billion. There are close to half a million Indian expats based in Oman, whose total population is around 4.6 million.

Oman has four sea ports facing the Indian Ocean. Its industrial zones at Duqm offer “30 years corporate tax exemption, 0% customs duty, 100% foreign ownership, usufruct agreements, 50 years renewable, no restrictions on repatriation of profits, no income tax, currency exchange freedom, and a stable currency rate,” as per Oman’s Ambassador to India Sheikh Hamad bin Saif Al Rawahi.

Oman’s sea ports are supported by airports and warehousing facilities. The Port of Duqm SEZ has been earmarked for an Indo-Oman JV, Sebacic Oman, which will be an US$1.2 billion acid plant. A ‘Little India’ integrated tourism complex project worth US$748 million has also been agreed to between the two countries, also located in Duqm. Indian entities are also among the largest foreign investors in the Port of Sohar, with an estimated investment of about US$2 billion. Other India-Oman JVs include the US$969 million Oman India Fertilizer Company (IFFCO, KRIBHCO of India and Oman Oil Company) at the port city of Sur, which produces urea for Indian farmers. Indian investments at the Port of Salalah are in manufacturing automotive parts, textiles, cables, guar gum, etc.

India-UAE set to take bilateral ties to the next level with CEPA

Formal negotiations for their bilateral FTA, called the India-UAE Comprehensive Economic Partnership Agreement (CEPA), began September 2021. The two countries want to conclude talks by December and close the deal by March 2022. The UAE is India’s third-largest export destination and India is seeking duty free market access on a whole range of products, such as gems and jewelry, textiles and garments, engineering goods, etc. New Delhi is sensitive of Dubai emerging as a transshipment hub for the entry of Chinese goods into India and so strict rules of origin are expected to be negotiated into the CEPA, such as 35 percent value addition in UAE for products to qualify for trade concessions from India.

Currently, 87 percent of UAE imports are subject to fiver percent tariffs and 11 percent attract zero duty. Other items are subject to higher duties or are in prohibited or restrictive lists of goods. Textiles, garments, jewelry are all taxed at five percent while 10 percent duty is levied on some steel products – cumulatively, they accounted for 34 percent of India’s US$16.7 billion exports to the UAE in FY 2020-21 and 43 percent in FY 2019-20. The UAE applies a much lower average tariff at 4.6 percent (2020 figure) as compared to India’s 15 percent. High duty items in the UAE are alcohol (50 percent) and tobacco (100 percent). This means that CEPA negotiations will necessitate much higher concessions from the Indian side.

Major Indian exports to the UAE are refined petroleum products, minerals, cereals, sugar, fruits, vegetables, tea, meat, seafood, textiles, engineering, machinery products, and chemicals. Major Indian imports from the UAE are petroleum and petroleum products, precious metals, stones, gems and jewelry, minerals, chemicals, and wood and wood products.

In FY 2019-20, the UAE was India’s second largest goods export market (US$29 billion in exports), after the US. In FY21, China replaced India due to the pandemic disruptions. The UAE has, however, long standing goodwill with India. It is the eighth largest foreign investor in India, accounting for US$11.3 billion in equity investments from April 2000 and March 2021. Investment by Indian entities in the UAE amounted to about US$85 billion (mostly in real estate) during the same period. Meanwhile, the UAE hosts nearly three million Indian expats who remit home nearly US$3 billion annually. Dubai is the top most visited tourist destination for Indians.

India-Australia draw out aggressive timeline for CECA negotiations

Formal negotiations for the India-Australia Comprehensive Economic Cooperation Agreement (CECA) took place during the 17th India-Australia Joint Ministerial Commission on September 30, 2021. Both sides have agreed to conclude an interim agreement or early harvest trade deal by December 2021. Under the early harvest agreement, duties on certain selected items will be reduced and an interim agreement that covers goods, services, investments, rules of origin, phytosanitary measures for fruits and vegetables, and mutual recognition of qualifications should be reached. The CECA is hoped to be finalized by the end of 2022.

Previously, India and Australia had launched CECA negotiations in May 2011, which were stalled and then eventually suspended in September 2015 after nine rounds of talks. The current geopolitical context is drastically changed since then and should serve as a factor motivating closer economic and commercial relations.

India’s export basket to Australia majorly comprises of goods like petroleum products, medicines, polished diamonds, gold jewelry, apparels etc., while key Australian exports to India include coal, LNG, alumina and non-monetary gold. In the services sector, major Indian exports to Australia are related to travel, telecom and computer, government and financial services, while Australian services exported to India are primarily related to education and personal services. Sectors like food and agribusiness, healthcare, infrastructure as well as mining and resources have been gaining importance in the recent years.

In 2019, India exported US$3.19 billion to Australia, including refined petroleum (US$287 million), packaged medicaments (US$277 million), and railway passenger cars (US$166 million). In 2019, Australia exports to India amounted to US$15.3 billion, including coal briquettes (US$12.1 billion), gold (US$604 million), and petroleum gas (US$419 million). Education remains Australia’s largest service export to India, valued at US$4.46 billion and accounting for around 88 percent of the total in 2020. At the end of 2020, Indian students in Australia numbered 115,137. The total value of two-way foreign direct investment between both countries was valued at US$1.04 billion in 2020. For more information, see our article “Trade and Investment Between India and Australia: Trends and Prospects”.

India-Canada trade talks sputter in the background

India is said to be in trade talks with Canada. As per the government of Canada, two-way merchandise trade between itself and India was $10.1 billion in 2019, and decreased to $8.7 billion in 2020 on account of the COVID pandemic.

Indian sectors of interest for Canadian companies include education, transportation infrastructure, life science, clean energy technology (integration of renewable energy/smart grid; carbon capture, use, and storage; and energy efficiency) and renewable energy, infrastructure development, natural resources, defense and security, value-added food products, mining, and oil and gas, etc. Canada is working to advance negotiations on a Foreign Investment Promotion Protection Agreement (FIPA) and a CEPA. India-Canada CEPA negotiations began in 2010 with the last full negotiation round held in August 2017, covering cross-border trade in goods and services, e-commerce, telecommunications, sanitary and phytosanitary measures, and technical barriers to trade. In June 2021, Indian and Canadian trade officials had another stocktaking meeting.

India-Israel trade talks to be revived

The two countries are reportedly going to resume FTA talks in November and want to sign a deal by mid-2022. India and Israel ties have flourished under the Narendra Modi government, with strategic relationships strengthened and closer military and technology partnerships. Cooperation is said to be improved in water and agriculture and both countries have established mutual recognition of vaccination certificates. Total merchandise trade between India and Israel amounted to US$4.67 billion in FY 2020-21.

India-UK looking at trade deal in stages

India-UK trade negotiations were slated to begin in November, with key results expected in two stages. First, conclude an early harvest deal by March 2022, followed by a comprehensive agreement. An Enhanced Trade Partnership was established between the two countries in May, indicating the unusually rapid progress in trade talks. For more information on India-UK trade and investment prospects, read our article “India-UK FTA Negotiations Set to Begin November 1, 2021”.

India-European Union FTA negotiations referenced in Danish PM visit to India

India and the EU restarted their FTA negotiations in goods and services in early 2021 after a gap of eight years. The two regions aim to work out pacts in investments and geographic indications parallel to FTA engagement. In his official trip to India, the Danish Prime Minister Mette Frederikson supported New Delhi’s inclination for an early conclusion of the India-EU FTA negotiations. India and Denmark have agreed to expand collaboration across multiple areas like agritech, food safety, cold chain, food processing, fertilizers, and aquaculture. Newer areas of cooperation would include smart water resource management and efficiencies in supply chain management. For more information on India-EU FTA engagement, see our article “Can We Expect an India-EU FTA Soon? What Has Changed in the Bilateral Relationship”.

This article was originally published November 6, 2021. It was updated on November 22, 2021.

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