On Sunday, India signed the India-EFTA Trade and Economic Partnership Agreement, our first trade deal with any Western nation or group. It was signed with the European Free Trade Association (EFTA), which comprises Iceland, Liechtenstein, Norway and Switzerland. It’s an innovative and well-balanced pact that covers two-way trade in goods and services as well as bilateral investments. Moreover, it is expected to pave the way for negotiations with other Western countries and blocs, including the EU, UK and US, among others.
The four EFTA members are not part of the EU and this inter-governmental organization was set up to promote and intensify trade. India has been negotiating a trade deal with this group since January 2008, but talks gained momentum only over the past year.
There is a broader global context to it. As little progress has been witnessed at the World Trade Organization (WTO), a multilateral forum, many countries around the world are rushing to forge free trade agreements (FTAs) to suit their requirements. The Narendra Modi government of India, on its part, has been working on ties with the EU, UK and US, apart from Canada, Qatar, the UAE, Australia, Mauritius and others. Given the current uncertainty over striking deals with the EU and UK, despite all the optimism, Sunday’s deal assumes special significance. Indian negotiators deserve praise for their relentless efforts to revive talks that had stalled for years in the face of various complexities and divergent geopolitical interests. And for India to play an active role in global supply chains in a fast-changing world, international alliances are crucial.
India-EFTA trade dynamics: India has consistently had a trade deficit with EFTA countries; it peaked at $23.7 billion in 2021-22, and then declined to $14.8 billion in 2022-23 before it again widened to $15.6 billion in April-December 2023. Switzerland is India’s largest trade partner among the group’s four members. India’s imports from Switzerland during January-December 2023 stood at almost $14 billion, vis-à-vis Indian exports of $877 million, resulting in a deficit of over $13.1 billion. Gold, with imports of about $13 billion, is the single largest imported item from that country. However, a large proportion of this gold goes into jewellery product that finds their way into international markets from India. Major Indian exports to EFTA countries include chemicals and semi-precious stones, ships and boats, pharmaceuticals and electronic instruments.
Since EFTA’s share in India’s total exports has been a tiny 0.4%, whereas imports from the four countries account for 2.4% of our import pie (down from 5.5% during the previous year), Indian negotiators have been very cautious in their negotiations. They were aware that duty elimination may lead to an even wider trade deficit. The deal struck is expected to provide duty-free EFTA market access to Indian animal products, fish, processed foods and vegetable oils, among other items. Should the merchandise gap widen, it will need to be compensated for by increased access to EFTA’s services market. Apart from the trade aspect, India can also look forward to investments and technology transfers in high-tech sectors.
India-EFTA economic partnership: The agreement’s balance comes from innovative measures across the agreement’s 14 chapters, which range from trade in goods and services and investment promotion and cooperation to trade facilitation, intellectual property rights, government procurement and technical barriers.
The India-EFTA trade deal is likely to unleash opportunities not only in trade and investment, but also for forging strategic partnerships with some of the world’s most tech-savvy countries that score very low on corruption and very high on people’s quality of life. We could collaborate in a range of high-tech fields, including IT research, as India seeks to achieve self-reliance. In the context of New Delhi’s policy resolve to ‘Make in India,’ such tech collaborations are expected to witness significant synergies and investments.
As a part of ‘investment promotion’, investments worth $100 billion are anticipated over time, much of it in sectors such as food processing, pharma, engineering and chemicals. Investments could also come from retirement and pension funds in EFTA countries, including Norway’s $1.6 trillion sovereign wealth fund. Unlike the efforts underway on the UK and EU trade deals, under which bilateral investment treaties are being negotiated as integral parts of the agreements, investment commitments under the India-EFTA pact are part of ‘investment promotion,’ which means they may not be legally binding. All the same, we can expect significant inflows.
As for what EFTA countries can look forward to, their businesses in search of alternatives to China for a manufacturing location would be able to count on India. Apart from that, the deal opens up avenues for EFTA firms to penetrate the domestic market of the world’s fastest growing major economy, home to more than 1.4 billion people.
With a worldwide edge in innovation and research and development (R&D) across diverse spheres—from digital trade, pharmaceuticals, bio-technology, food processing and chemicals to financial and banking services, high-tech farming, supply-chain logistics and green energy—EFTA countries could help India integrate cutting-edge technological advancements in its manufacturing, agriculture and service sectors for the eventual benefit of the country’s economy.
The India-EFTA trade deal is thus likely to pave the way for major opportunities not only in trade and investment, but also in the sphere of strategic international partnerships, making it a win-win.