India’s Unusual Rush To Sign Free Trade Deals

India has the reputation of being a foot-dragger when it comes to agreeing to free trade agreements. The reputation is somewhat deserving considering that India pulled out of the giant Regional Comprehensive Partnership Agreement (RCEP), the giant regional trading deal involving China, Japan, Australia, and ASEAN, and another bilateral deal involving India and the EU has floundered in negotiations for over a decade. Given this track record, recent announcements from New Delhi to conclude free trade deals with the U.K. and Australia by the end of the year comes as a shock. The unseemly haste to seal the deals signal that something fundamental may be changing in India in terms of attitudes and approach toward free trade. The answer, given India’s complexity, is both a yes and a no.

Unlike its giant neighbor China, whose total goods trade volume alone surpassed $5 trillion last year, India is a minnow with goods trade in the $800 billion range. This number is expanding at a double-digit clip but is hampered by the fact that there is no natural constituency for free trade in the country. The country’s political class are deeply skeptical about the merits of expanding trade links, with much of the thinking dating from the colonial era when unfettered imports from Britain devastated the domestic economy. More recently, India’s large business houses are also keen to safeguard their interests by advocating for a slower pace of trade and investment liberalization. The travails of foreign firms attempting to access India’s growing retail sector is indicative of this trend.

However, the pandemic appears to have softened Indian government’s attitudes on the merits of free trade. From a strategic economic perspective, India’s absence in two of Asia’s mega regional trading arrangements—RCEP and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)—shuts it out from gaining preferential access from fast-growing markets. While India does have FTAs or Comprehensive Economic Partnership agreements with ASEAN, Japan, and Korea, New Delhi must worry about the implications of not being party to aggregated deals involving all of the parties listed above.

This is where the relatively safe FTAs currently being negotiated with the U.K. and Australia should be viewed in context. Commerce Minister Piyush Goyal indicated in December that he is keen to conclude an “early harvest” trade agreement with the two countries. The early harvest deals, Indian officials have explained, would exclude “sensitive issues” for the moment and aim to achieve a significant percentage of coverage of goods and services under the deals. In short, this represents a dramatic shift in India’s negotiating stance of the past, where it has insisted on all or nothing agreements skewed in its favor. The EU-India FTA, for example, stalled in negotiations hell over New Delhi’s insistence that the deal should include clauses enabling Indian students studying in the U.K. to secure limited duration work visas after their graduation. The U.K., then part of the European Union, refused to bend and in a development rich with irony has demonstrated greater flexibility with India over this issue.

Indian policymakers probably recognize that in order to provide unimpeded access to made-in-India goods and services to the world market, the country needs to change its approach. This is a positive development because even America appears to have turned its back on free trade with the Biden administration’s refusal to reconsider joining the CPTPP. The early harvest approach is sensible because it immediately opens up trade avenues for non-contentious goods and services and provides negotiators with some more time to understand the implications of fully opening up their markets. Far from being a foot-dragger in global trading deals, India may well prove to be a pathbreaker if the agreements with London and Canberra are sealed by the end of the year.