India’s Free Trade Agreements (FTAs) must extend their purpose beyond merely boosting exports, shifting focus to actively promoting manufacturing growth, integrating into Global Value Chains (GVCs), and attracting high-tech investments.
A recently established committee, tasked with monitoring FTA implementation, is being urged to significantly broaden its mandate. Currently, the committee primarily focuses on removing export barriers for Indian goods.
Expanding the Committee’s Mandate
However, experts contend the committee’s scope must expand to include:
- Import efficiency, vital for competitive GVC participation.
- Rationalized tariffs on intermediate goods.
- Greater regulatory alignment.
- Mutual recognition agreements.
- Investment-facilitation measures.
This expansion is crucial given India’s evolving export profile, which increasingly leans towards import-intensive sectors such as electronics and pharmaceuticals. Scaling India’s presence in these industries necessitates a comprehensive approach to trade policy.
Measuring True FTA Success
The more profound measure of an FTA’s effectiveness lies in its capacity to attract capital- and tech-rich Foreign Direct Investment (FDI). Such investment is essential for upgrading the country’s manufacturing base.
This strategic shift aims to significantly increase India’s participation in Global Value Chains, targeting:
- Current GVC participation: 37-38%
- Target GVC participation: 55%
Embracing Assembly-Led Growth
India is encouraged to abandon its historical bias against assembly-led investment within high-tech industries. This approach is viewed as a sequential yet crucial path towards building robust domestic capabilities.
The nation’s automobile industry serves as a prime example of this progression. It began with assembly, relied on imported inputs and foreign technology, and gradually localized components.
Over time, the sector deepened engineering skills and ascended into higher-value segments. This demonstrates a viable trajectory for other high-tech sectors.
Therefore, Free Trade Agreements with capital and tech-rich partners should function as industrial accelerators, driving domestic policy and closing regulatory gaps. The ultimate success metric should be the creation of more factories, technologies, suppliers, and high-productivity jobs across India, rather than solely focusing on tariff reductions or export volumes.