Hindu Editorial Analysis : 14-March-2024

Recently, India signed a Free Trade Agreement (FTA) with four European countries: Iceland, Liechtenstein, Norway, and Switzerland. This agreement, known as the Trade and Economic Partnership Agreement (TEPA), aims to enhance investments in India and create jobs over the next 15 years.

About the Agreement

The TEPA is significant because it is India’s second comprehensive FTA, following its agreement with the United Arab Emirates. Key features of this agreement include:

  • Tariff Reductions: Expect considerable reductions in tariffs for various goods.
  • Market Access: Improved access for Indian products in the EFTA member states.
  • Simplified Customs: Easier customs procedures to facilitate trade.

Key Details of the TEPA

  • Signed On: March 10, 2024
  • Participants: India and EFTA member countries (Iceland, Liechtenstein, Norway, Switzerland)
  • Investment Target: EFTA aims to invest $100 billion in India over 15 years.

Potential Benefits for India

The TEPA presents several advantages for India:

  • Tariff Reduction: EFTA countries will reduce tariffs on various industrial goods like:
    • Pharmaceutical products
    • Machinery
    • Chemical products
  • Increased Trade: In 2022, EFTA’s investment in India was $10.7 billion. With Switzerland as the largest trading partner in this bloc, further growth is anticipated.
  • Job Creation: The agreement could generate one million direct jobs in India.
  • Market Access: Indian products will gain entry into EFTA markets, boosting exports.
  • Services Sector Growth: The agreement supports services exports, particularly in information technology.

Challenges for India

Despite the advantages, several challenges remain:

  • Limited Benefits for Swiss Trade: A significant portion of India’s exports to Switzerland already enter at zero tariffs, limiting FTA benefits.
  • Agricultural Products Excluded: Many agricultural items are not included in the agreement, which may restrict growth in this sector.
  • Trade Deficit Concerns: India had a trade deficit of $18.58 billion with EFTA in 2023, largely due to gold imports from Switzerland.
  • Limited Competition: The identified joint venture areas may not present strong competition for India, potentially reducing investment incentives.

Why In News

India recently signed a free trade agreement (FTA) with four European countries—Iceland, Liechtenstein, Norway, and Switzerland—with the ambitious goal of attracting $100 billion in investments and creating one million jobs over the next 15 years. This strategic partnership is expected to enhance India’s economic landscape and strengthen trade relations with these nations.

MCQs about India’s Free Trade Agreement with EFTA

  1. What is the primary goal of India’s Free Trade Agreement with EFTA?
    A. To reduce tariffs on agricultural products
    B. To reach $100 billion in investments in India and create one million jobs
    C. To increase gold imports from Switzerland
    D. To simplify customs procedures for all goods
    Correct Answer: B. To reach $100 billion in investments in India and create one million jobs
    Explanation: The main goal of the FTA is to attract $100 billion in investments and create one million jobs in India over the next 15 years.
  2. Which of the following countries is NOT a member of the EFTA involved in the agreement with India?
    A. Iceland
    B. Norway
    C. Sweden
    D. Switzerland
    Correct Answer: C. Sweden
    Explanation: The EFTA members involved in the agreement are Iceland, Liechtenstein, Norway, and Switzerland. Sweden is not part of EFTA.
  3. What challenge does India face regarding its trade with Switzerland as per the agreement?
    A. High tariffs on Indian goods
    B. Limited benefits since most exports already enter at zero tariffs
    C. Excessive competition from Swiss products
    D. Exclusion of technology-related goods from the agreement
    Correct Answer: B. Limited benefits since most exports already enter at zero tariffs
    Explanation: A significant portion of India’s exports to Switzerland already enjoys zero tariffs, meaning the FTA may not provide additional benefits for those goods.
  4. How is the services sector expected to benefit from the TEPA?
    A. By increasing tariffs on services exports
    B. By limiting the movement of skilled personnel
    C. By stimulating exports in areas like information technology
    D. By excluding services from the agreement
    Correct Answer: C. By stimulating exports in areas like information technology
    Explanation: The TEPA aims to support the services sector, particularly by enhancing exports in information technology and facilitating the movement of skilled personnel.

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