Free Trade Agreements (FTAs) and India's Trade Policy
Indian Economy
- PYQs5
- Articles1
Background
UPSC frequently examines India's trade policy, its strategic rationale, challenges in negotiations (especially balancing domestic interests with global commitments), and the economic impact of such agreements on various sectors.
Free Trade Agreements (FTAs) are pacts between two or more countries to reduce or eliminate barriers to trade, such as tariffs and quotas, to facilitate the exchange of goods and services. For India, FTAs are a key component of its trade policy, aimed at boosting exports, attracting investment, and integrating into global supply chains, often driven by geopolitical and economic imperatives.
Facts & tables
- ECTA (2022) with Australia
- Opened 100% of Australian market to India, while India reciprocated with ~70% market access.
- CECA (Proposed)
- An expansion of ECTA, with Australia seeking greater market access parity.
- Driving factors for India's FTA push
- Geopolitical fragility and balance of payments stress.
- Negotiation complexity
- Involves balancing market access with protection of sensitive domestic sectors like agriculture.
| Agreement | Key Feature |
|---|---|
| ECTA (2022) | Australia: 100% market access for Indian exports; India: ~70% market access (91% trade value) |
| CECA (Proposed) | Expansion of ECTA, Australia seeks parity in market access |
| Type | Reference |
|---|---|
| Conceptual area | International Relations |
| Conceptual area | Indian Economy |
| Body | Role |
|---|---|
| Ministry of Commerce and Industry | Negotiates and implements trade agreements |
| Reserve Bank of India | Monitors balance of payments and external sector stability |
Prelims angle
Prelims angle: Factual recall
Prelims angle: Terminology-based question
- FTAs reduce trade barriers (tariffs, quotas) between signatory nations.
- ECTA (2022) and proposed CECA with Australia are key examples.
- India's FTA push is driven by geopolitical fragility and BoP concerns.
- Negotiations balance market access with protection of sensitive domestic sectors.
- Aims to boost exports, attract investment, and integrate into global value chains.
| Year | Framing tags |
|---|---|
| 2020 | Multi-statement analysis, Factual recall |
| 2020 | Multi-statement analysis, Conceptual understanding |
| 2020 | Multi-statement analysis, Factual recall |
| 2017 | Factual recall, Terminology-based question |
| 2016 | Multi-statement analysis, Conceptual understanding |
Timeline
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International Relations
Conceptual area
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Indian Economy
Conceptual area
-
Prelims 2016
Multi-statement analysis, Conceptual understanding
-
Prelims 2017
Factual recall, Terminology-based question
-
Prelims 2020
Multi-statement analysis, Factual recall
-
Prelims 2020
Multi-statement analysis, Conceptual understanding
-
Prelims 2020
Multi-statement analysis, Factual recall
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India and Australia — bridging the trade and trust barrier
India's strategic pursuit of FTAs like ECTA and the proposed CECA with Australia is a critical aspect of its trade policy, aimed at enhancing economic ties and navigating global uncertainties, while carefully managing domestic sensitivities and trade imbalances.
See also
Past papers
2016–2020 · 5 questions
In the news
India and Australia — bridging the trade and trust barrier
India's strategic pursuit of FTAs like ECTA and the proposed CECA with Australia is a critical aspect of its trade policy, aimed at enhancing economic ties and navigating global uncertainties, while carefully managing domestic sensitivities and trade imbalances.
Try these PYQs
Broad-based Trade and Investment Agreement (BTIA)’ is sometimes seen in the news in the context of negotiations held between India and
The Broad-based Trade and Investment Agreement (BTIA) is negotiated between India and the European Union (EU).
Consider the following statements:
1. The value of Indo-Sri Lanka trade has consistently increased in the last decade.
2. “Textile and textile articles” constitute an important item of trade between India and Bangladesh.
3. In the last five years, Nepal has been the largest trading partner of India in South Asia.
Which of the statements given above is/are correct?
Statement 1 is not correct. Bilateral trade between India and Sri Lanka has increased by around 9 times between 2000-01 and 2018-19. Total trade between the two countries was US$ 6.2 billion in 2018-19, out of which India's exports to Sri Lanka were US$ 4.7 billion and imports were US$ 1.5 billion. Although India has always had a trade surplus with Sri Lanka, the gap has widened since 2008-09. In 2012-13 and 2016-17, the trade slumped, thus disturbing the steady increase in the graph. Statement 2 is correct. According to the World Bank, India exports $2.25 billion worth of textile and clothing products to Bangladesh. In turn, it imports $336 million worth of textile and clothing products from Dhaka. Statement 3 is not correct. Bangladesh is India's biggest trade partner in South Asia. Bilateral trade between India and Bangladesh has grown steadily over the last decade. India's exports to Bangladesh in FY 2018-19 stood at $9.21 billion and imports during the same period were at $1.04 billion.
With reference to the Trade-Related Investment Measures (TRIMS), which of the following statements is/are correct?
1. Quantitative restrictions on imports by foreign investors are prohibited.
2. They apply to investment measures related to trade in both goods and services.
3. They are not concerned with the regulation of foreign investments.
Select the correct answer using the code given below:
Statement 1 is correct: The Trade-Related Investment Measures (TRIMS) agreement under the World Trade Organization (WTO) prohibits quantitative restrictions on imports by foreign investors. This means that countries cannot impose conditions like mandatory local sourcing or trade-balancing requirements that distort free trade. Statement 2 is incorrect: TRIMS only applies to trade in goods, not services. The regulation of trade in services falls under the General Agreement on Trade in Services (GATS), not TRIMS. Statement 3 is correct: TRIMS is not directly concerned with the regulation of foreign investments. Instead, it focuses on investment measures that affect trade in goods, ensuring that they do not create barriers to international trade. Hence, option C is the correct answer.
With reference to the international trade of India at present, which of the following statements is/are correct?
1. India’s merchandise exports are less than its merchandise imports.
2. India’s imports of iron and steel, chemicals, fertilisers and machinery have decreased in recent years.
3. India’s exports of services are more than its imports of services.
4. India suffers from an overall trade/current account deficit.
Select the correct answer using the code given below:
Statement 1 is correct. Merchandise trade deficit is the largest component of India's current account deficit. As per RBIs data, India's Merchandise exports during April-August 2019- 2020 were USD 133.14 billion, as compared to USD 210.39 billion of imports during the same period. Statement 2 is incorrect. Commodity-wise composition of imports between 2011-12 and 2018-19 shows that imports of iron and steel, organic chemicals, industrial machinery have registered positive growth rates as % of share in imports. Statement 3 is correct. India's net services (service exports - service imports) have been in surplus. India's Service exports during April-August 2019- 2020 were USD 67.24 billion, as compared to USD 39.25 billion of imports during the same period. Statement 4 is correct. Current Account Deficit (CAD) or trade deficit is the shortfall between exports and imports. As per Economic Survey 2019-20, India's CAD was 2.1% in 2018-19, and 1.5% of GDP in H1 of 2019-20. Therefore, the correct answer is (D) 1, 3 and 4 only. _NOTE: UPSC has not considered this question for marking._
With reference to the ‘Trans-Pacific Partnership’, consider the following statements:
1. It is an agreement among all the Pacific Rim countries except China and Russia.
2. It is a strategic alliance for the purpose of maritime security only.
Which of the statements given above is/are correct?
Statement 1 is Incorrect: While China and Russia were not part of the TPP negotiations, it wasn't solely focused on Pacific Rim countries. Other economies like Vietnam and Singapore were part of the TPP despite not exactly being on the Pacific Rim. Statement 2 is Incorrect: The TPP was a proposed trade agreement, not a strategic alliance for maritime security. It aimed to reduce trade barriers and promote economic integration among member countries. The TPP negotiations were concluded in 2015, but the agreement was never ratified by all the signatories. The United States withdrew from the TPP in 2017, effectively ending the initiative in its original form. However, some member countries pursued alternative trade agreements based on the TPP framework. Hence, option D is the correct answer.