Modi's foreign trips can wait. Indian trade needs emergency landing

Howsoever spectacular Prime Minister Narendra Modi's diplomatic campaign might have been, the fact remains the void in the trade diplomacy has grown faster than ever. If the government's own Economic Survey is to be believed, India's foreign trade has gained momentum over the last decade with a flurry of free and preferential trade agreements signed with other countries.

Facts and figures confirm that the trade has grown in proportion to Free Trade Agreements (FTAs). However, instead of making the most of it, PM Narendra Modi's diplomacy has not only stalled on this front, but shifted towards the margins under Swadeshi and protectionist compulsions.

Last year, while the prime minister was inviting globe to invest in India, his government’s orthodoxy was singing the requiem of trade liberalisation by preventing free and preferential trade agreement with European Union. FTA with European Union was seen as the most ambitious one after that with ASEAN, yet government stalled negotiations on the same under Swadeshi pressures and conservative assumptions.

The impact of the FTA system on India's foreign trade can be reasonably and factually estimated in the light of the Economic Survey. The one-point conclusion of this investigation is that the total trade with countries with which India has signed FTA/PTA has grown by 50 per cent between 2007 and 2014. This increase is quite substantial. This is so because countries in FTA/PTA reduce their custom duties on trade and limit their trade restrictions, which directly leads to increase in trade and investment volume.

There are three models of trade agreements prevalent in international trade nowadays. The first category has multilateral trade agreements like WTO and Trans Pacific Treaty (TPP).  WTO did not turn out to be successful enough while the ground for TPP is still being prepared. The second is regional trade blocs like ASEAN (South East Asia), NAFTA (North America) and EU (European Union).

These had been successful in increasing trade among the groupings. The third category is FTA, which has become the bedrock of increasing trade investment in the world. These include bilateral agreements between countries and agreements with trade blocs. India is seriously lagging behind in this race.

India’s expedition on the FTA route kicked off in 1970 when it entered a deal with Africa, but the journey could only hit 19 FTA destinations till 2010. This stands in comparison with an average 15 FTAs being signed in the world each year from 2004 to 2014.

In some years, the average had been 20 to 25 FTAs. Most of India's FTAs have been signed with Asian countries. Out of Asia, two FTAs had been signed with MERCOSUR (Brazil, Argentina, Uruguay, Paraguay) and Chile.

According to trade volume, India's most important FTAs in Asia are with ASEAN, Korea and Japan. Data in the Economic Survey showed India's trade has grown by 50 per cent after signing FTAs with these nations and trade blocs. Trade growth with countries other than these partners stood at 13 per cent before the FTA, which surged to 22 per cent after it entered FTA with them.

India's FTA with ASEAN is regarded as the most successful. The latest figures show that in four years till 2014, country's export to ASEAN grew to 25 per cent, which was 14 per cent before signing the FTA.

The exemplary FTA success with ASEAN had rightly fuelled hopes for sealing FTA deal with EU as well because Europe is the second largest market of the world and for Indian exports to gain new energy, entry to it was extremely important.

Alas, fresh initiatives or any progress on the same now stands stalled due to government's Swadeshi dilemma. Consequently, the India-EU summit in Brussels late last week ended without any headway on the proposed trade deal.

The Economic Survey data on trade corroborates the fact that not taking initiatives on preferential trade agreements is a diplomatic mistake that government committed repeatedly for the last two years. Therefore, one of the reasons why exports hit a 15-month low could possibly be because Modi government did not accelerate free market agreements buckling under protectionist pressures.