ASEAN, South Korea, Japan FTAs increased India's goods trade deficit

India's merchandise trade deficit with ASEAN member countries, South Korea and Japan increased significantly more than its global trade deficit after signing free trade agreements (FTA) with the participant countries, an analysis done by Delhi-based think tank Global Trade Research Initiative (GTRI) points out.

The India FTA Outlook 2024 Report published by GTRI said that after the signing of the FTA, India's merchandise trade deficits grew by 302.9% with ASEAN, 164.1% with South Korea, and 138.2% with Japan, compared to a 81.2% increase in the global deficit. This comparison is based on data from the pre-FTA period (2007-09) and recent trade data (2020- 22). India had signed these FTAs in 2010-2011.

The GTRI report points out that India's exports to these FTA partners have increased at a lower rate than its imports. While exports grew by 123.9% and imports by 175.7% with ASEAN, with Japan, exports grew by 56.4% and imports by 98.5%. In the case of South Korea, India's exports increased by 89.1% and imports by 127.3%.

According to GTRI, the reasons behind India's weaker export performance include higher tariffs in India and lower tariffs in its FTA partner countries. "Many Indian firms choose not to use the FTA route when import duties are low, as FTA-related compliance costs do not justify the tariff benefits. For example, in the case of India's FTA partners, many imports occur at zero or low Most Favoured Nation (MFN) duties, such as Singapore (0%), Japan (2.4%), Malaysia (3.5%), Vietnam (5.3%), Mauritius (1.1%), UAE (3.5%), and Australia (2.6%). This situation limits the additional market access that FTAs could provide to Indian exporters. Conversely, India has higher import duties, so eliminating these duties under FTAs gives a price advantage to products from FTA partner countries," the report points out.

The report also cautions that looking at India's past trade agreements, the factors (low MFN import duties and most imports already at zero or low duties in FTA partner countries) that resulted in India's weak export performance to the 3 FTA partners (ASEAN, Japan, and South Korea) continue to be relevant for new FTA partners as well.