Assess the potential impact of the India-EFTA Trade and Economic Partnership Agreement (TEPA) on the diversification of India’s trade portfolio and its implications for long-term economic development.

Why?

The India-EFTA TEPA marks a strategic shift in India’s FTAs towards deeper economic ties with key European nations, highlighting its first significant trade engagement with the Western world.

Approach:

• Introduce by highlighting the significance of India-EFTA TEPA as a strategic move in India’s foreign trade policy to deepen economic ties and promote trade liberalization.
• In the main body, discuss the benefits of trade diversification through TEPA, including expanded market access, export diversification, import of advanced technologies, etc. Mention the implications for economic development like increased investment flows, employment generation, skill development, innovation ecosystem, alignment with SDGs, etc.
• Conclude by emphasizing TEPA’s potential to position India as a pivotal player in the global economy and set a precedent for future agreements with other European nations.

Answer:

The India-EFTA Trade and Economic Partnership Agreement (TEPA) represents a significant leap in India’s foreign trade policy, marking its first Free Trade Agreement (FTA) with European countries, including Switzerland, Norway, Iceland, and Liechtenstein. This agreement aims at deepening economic ties, reducing tariff barriers, and promoting trade liberalization in a period characterized by rising global protectionism, setting a precedent for future agreements with other European nations.

Trade Diversification through TEPA:

• Market Access Expansion: TEPA offers Indian goods and services a wider market reach beyond its conventional trading partners.
  • Access to the niche markets in EFTA for Indian textiles and IT services.
• Export Basket Diversification: By leveraging the preferential access granted by TEPA, India is expected to expand its export basket with a focus on specialized sectors.
  • Potential increase in the export of pharmaceuticals and organic chemicals to EFTA countries.
• Import of Advanced Technologies: TEPA facilitates the importation of advanced European technologies, including medical devices, dairy products, and machinery.
  • Acquisition of Swiss precision instruments could enhance India’s manufacturing capabilities.
• Enhanced Service Sector Cooperation: Commitments on services liberalization under TEPA open avenues for Indian professionals in sectors like IT, healthcare, and wellness in EFTA states.
  • Enhanced opportunities for Indian IT firms in Norway and Switzerland’s banking sectors.
• Enhanced Quality and Standards: Engaging with EFTA countries, known for their high-quality standards, can encourage Indian industries to upgrade their standards, thereby increasing the competitiveness of Indian exports globally.

Implications for Economic Development:

• Increased Investment Flows: TEPA aims to increase Foreign Direct Investment (FDI) from EFTA countries into India, enhancing economic growth and development.
  • The agreement includes a commitment of $100 billion investment.
• Employment Generation: TEPA’s investment goals aim to create one million jobs over a 15-year period.
  • Job creation in sectors such as renewable energy.
• Skill Development: Exposure to EFTA’s high-skilled labor market encourages skill development in India.
  • Training programs for Indian workers aligned with EFTA’s technological standards.
• Innovation Ecosystem: The agreement necessitates enhanced IPR protection which could encourage innovation and collaboration, fostering an innovation-led growth model in India.
  • Joint research initiatives in biotechnology, pharmaceuticals and renewable energy.
• Global Value Chains Integration: TEPA potentially integrates India more deeply into global value chains, especially in specialized manufacturing.
  • Inclusion of Indian components in Swiss watches or Norwegian shipping vessels.
• Infrastructural Development: FDI from EFTA countries could be directed towards infrastructural projects, enhancing India’s physical and digital infrastructure.
  • Swiss and Norwegian expertise and investments in India’s railway and digital infrastructure.
• Sustainable Development Goals (SDGs): TEPA includes provisions for environmental protection and social welfare, aligning trade expansion with sustainable development objectives.
  • Focus on sustainable use of resources and labour rights promotes SDGs 8 and 12.

The India-EFTA TEPA is a landmark agreement that stands to significantly diversify India’s trade relationships, reduce market and product concentration risks, and pave the way for a broader integration into the global economy. The agreement’s comprehensive scope, is poised to fuel long-term economic development, providing India with the impetus to climb higher on the value chain, stimulate job creation, and foster an innovation-driven economy.

‘+1’ Value Addition:

• Gold, which accounts for 80% of the merchandise imports from EFTA countries, as well as dairy, soya, coal and some sensitive agricultural products have been excluded from India’s tariff concession list.
• Commitments by Norway for access to yoga instructors and practitioners of traditional medicine from India. Both Norway and Switzerland have committed four and three years respectively for highly skilled Indian professionals moving as intra-corporate transferees.