India economy: Improving prospects for free trade

As India moves towards greater openness in its economy and seeks large-scale funding for investment, its interest in free-trade agreements (FTAs) is growing. Key deals have already been signed with Japan, Malaysia and South Korea, and attempts are under way to hammer out agreements with Thailand, Israel, Australia and the EU. The Broad-based Trade and Investment Agreement (BTIA), once agreed, will cover almost one-fifth of the world’s population and is expected to boost India-EU trade significantly. Although negotiations have been protracted, both parties have expressed hopes that a final agreement will be ready to be signed at the bilateral India-EU summit in February 2013.

The EU is India’s single-largest trading partner, and there are significant gains to be made from formalising this trading pact. An Indian trade association, the Federation of Indian Chambers of Commerce and Industry, estimates that signing an FTA will almost double bilateral trade – which stood at US$111bn in 2011 – by 2015. Despite weakness in the euro zone and a domestic economic slowdown in India, bilateral trade grew by an average of 16% a year in 2007–11. India is particularly attractive to its trading partners for its fast-growing middle class and rising numbers of young people.

For India the advantages of the BTIA are clear: it would provide greater access to the large markets of the EU for both its products and citizens. As part of the agreement, it is expected that India’s skilled professionals will be given access (albeit time-limited) to the EU for work. Indeed, the FTA has expanded in scope to cover both trade and services between the two markets.

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