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India and the four-nation European Free Trade Association (EFTA) grouping — comprising Iceland, Liechtenstein, Norway and Switzerland — are poised to sign a trade deal on March 10, a person aware of the development said.
The Trade and Economic Partnership Agreement (TEPA) is among three free-trade agreements (FTAs) India is pushing to finalise this month, before the Model Code of Conduct, that bars major policy announcements after the release of general election dates, kicks in.
The two other deals are with Oman and the UK.
While the Oman deal is in advanced stages with legal scrutiny underway, the much anticipated India-UK FTA is also being taken up at the highest level, with the Prime Minister’s Office (PMO) reviewing the deal late last month. According to a PTI report, UK Secretary of State for Business and Trade Kemi Badenoch has said that an India-UK FTA “is possible” before the Indian elections, but that the UK does not want to use that as a “deadline”.
Other trade deals — the comprehensive agreement with Australia and the FTA with the 27-member European Union (EU) — are also being negotiated but are expected to be concluded only after the general election. Both deals involve the agriculture sector, a sensitive subject for India especially amid the farmers’ unrest.
The Indian Express had reported last week that India and EFTA are nearing a conclusion of the deal which would see the European bloc committing an investment of $100 billion in India over 15 years in sectors including pharma, food processing, engineering and chemicals.
The investment commitment, the first of its kind in an FTA, would largely come from provident funds in EFTA countries. These include Norway’s $1.6-trillion sovereign wealth fund, the world’s largest pension fund which posted a record profit of $213 billion in 2023 on the back of strong technology stock returns.
The investment commitment, however, may not be legally binding. A government official had told The Indian Express that the commitment falls under “investment promotion” and that India and EFTA are not signing a Bilateral Investment Treaty (BIT), as is being negotiated with the UK and the EU.
An investment commitment is crucial as India-EFTA trade is largely in favour of the European grouping as far as goods are concerned. Trade experts say India runs a high trade deficit with Switzerland, which could widen after India eliminates duties as part of the deal. During FY23, India’s imports from Switzerland stood at $15.79 billion in stark contrast to its exports of $1.34 billion, leading to a substantial trade deficit of $14.45 billion.
Trade agreements have historically helped India’s partner countries because of high average tariffs in India. India, therefore, is looking to attract investments and get better market access for its service sector workforce.
The Indian Express had also reported that EFTA is also looking at striking joint ventures in pharma, (especially medical devices), chemicals, food processing and engineering. Trade experts pointed out that the investment commitment could be a crucial gain for India.
After the India-EFTA deal, India could see higher imports of machinery, pharmaceuticals, medical instruments and machinery as there would be a sharp reduction in Indian tariffs which hover around an average rate of 18%, among the highest in the world. India is also looking at the EFTA deal to help diversify imports away from China. India currently depends on China for key medical imports.
India’s main imports from Switzerland in FY23 included: gold: $12.6 billion, machinery: $409 million, pharmaceuticals: $309 million, coking and steam coal: $380 million, optical instruments and orthopaedic appliances: $296 million, watches: $211.4 million, cotton: $81.3 million, soybean oil: $202 million, chocolates: $7 million.
