The free trade agreement in services and investment that India signed with Asean on Monday is expected to make the movement of professionals easier and promote investment. This comes on the back of the FTA in goods with Asean in 2009. While the exact benefits from FTAs are difficult to quantify, they increase investor confidence within member countries by providing legal benefits and sureties. These agreements are important not just for foreign investors coming into India, but also for Indian investors looking to invest abroad. This is also the moment, therefore, to revisit several other bilateral agreements that are still being negotiated in order to ensure that they are concluded soon. Although these agreements might be structured in such a way that some industries appear to lose in the short run, consumers in the country would gain and greater competition will make the industry healthier in the long run.
India and the EU began negotiating an FTA in 2007, for instance, but a final agreement has still not been reached. While the EU has been demanding a liberalisation of the FDI caps in multibrand retail and areas like accountancy and legal services, India is pressing the EU for cuts in agricultural subsidies. Also in the pipeline are agreements with Canada and Israel, which have been stalled for various reasons. It is in India’s interest to explore creative solutions to the contentious items in these treaties, such as keeping out tariff reductions on agricultural products from the EU FTA.
Properly regulated, foreign trade can stimulate the flow of investment into a capital-starved country like India. Additionally, there are a number of indirect benefits to be had, such as technology transfers and closer financial integration with the global economy. However, to attract foreign investors, the ease of doing business will have to be improved and assurances on the stability of legal frameworks provided. Given the impasse at the WTO, the Asean FTA is welcome. Now the government must find mutually acceptable compromises for the other FTAs.