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India signs Trade Agreement with the EFTA

Why is it in the news?

  • India signed a trade deal with European Free Trade Association (EFTA), comprising Iceland, Liechtenstein, Norway, and Switzerland, securing $100 billion investment over 15 years.
  • The agreement aims to foster joint ventures to reduce India’s dependence on imports from China, marking a strategic move amid global supply chain shifts.
  • This deal holds significance for India as it seeks to balance trade deficits, promote diversification in key sectors, and navigate political uncertainties in other major trade agreements.

 More about the news

  • The signing of the trade agreement between India and the European Free Trade Association (EFTA) comes amidst a critical period, with numerous countries, including India, undergoing elections.
  • The urgency to secure trade deals is highlighted due to the potential disruption caused by political transitions and the ongoing realignment of the global supply chain, particularly with investment shifting away from China.
  • The agreement is expected to undergo ratification by the EFTA states by the end of 2024, after which it will come into force.
  • Negotiations for the FTA began in 2008 and were resumed in 2023, resulting in a comprehensive treaty after 21 rounds of talks.

Significance of the deal

  • The $100 billion investment over 15 years from EFTA countries aims to support India in diversifying its imports away from China, addressing concerns about over-reliance on a single trading partner.
  • While the specifics of the investment commitment remain unclear, such substantial investment could potentially stimulate economic growth, create employment opportunities, and enhance India’s competitiveness in various sectors.
  • The investment inflow from EFTA nations, including Norway’s significant sovereign wealth fund, is expected to target key sectors such as pharmaceuticals, chemicals, food processing, and engineering.
  • Joint ventures (JVs) in these sectors are anticipated to facilitate technology transfer, infrastructure development, and capacity building, thereby strengthening India’s manufacturing capabilities and reducing dependence on Chinese imports.
  • Notably, the influx of investment is poised to drive innovation, foster entrepreneurship, and enhance the overall competitiveness of India’s industrial landscape.

Challenges in Accessing EFTA Markets

  • Switzerland’s decision to eliminate import duties on all industrial goods poses both opportunities and challenges for Indian exporters.
  • While tariff elimination enhances market access, Indian exporters face intensified competition in sectors where they have a strong presence, potentially impacting export volumes and profitability.
  • Additionally, navigating the complex regulatory environment, stringent quality standards, and approval requirements within EFTA countries remains a challenge for Indian exporters, particularly in the agricultural sector.

Conclusion

  • The India-EFTA trade agreement signifies a strategic move towards diversifying India’s trade partnerships and reducing dependency on China, aligning with India’s broader economic objectives.
  • However, the success of the agreement hinges on effective implementation, sustained investment inflows, and proactive measures to address regulatory hurdles and market access barriers.

Moving forward, fostering closer collaboration between India and EFTA countries, leveraging technological advancements, and promoting innovation-driven growth strategies will be crucial for maximizing the benefits of the trade agreement and fostering long-term economic prosperity.

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