TRADE AGREEMENTS – THE INDIAN PERSPECTIVE
CASE STUDY: INDIA-ASEAN FTA
ASEAN and India signed the ASEAN-India Trade in Goods (TIG) Agreement in Bangkok on 13 August 2009, after six years of negotiations. The ASEAN-India TIG Agreement entered into force on 1 January 2010.
As evident from the below graph that India- ASEAN trade strengthened post the FTA in 2010 however the degree of increase in imports has been much higher than exports to ASEAN. The wedge between import and export from and to ASEAN has increased post the FTA which was intertwined till 2005.
|In $ Bn||2001||2002||2003||2004||2005||2006||2007||2008||2009||2010|
|India’s export to ASEAN||3.32||4.50||5.07||7.55||10.29||12.37||13.82||19.43||17.90||22.96|
|India’s import from ASEAN||4.35||4.81||6.69||8.55||10.63||16.30||21.03||26.70||23.97||29.64|
|In $ Bn||2011||2012||2013||2014||2015||2016||2017||2018|
|India’s export to ASEAN||34.50||32.30||37.89||31.29||26.43||26.38||35.41||36.07|
|India’s import from ASEAN||40.33||42.74||42.31||44.46||41.52||38.22||45.30||57.21|
The trend of trade deficit evinces that India- ASEAN trade balance deteriorated for India post the FTA, in spite of the fact that deficit has not followed a constant trend of increase or decrease but it can be concluded that the trade deficit of India with ASEAN has not improved post 2010 except 2013. However this assertion when put to test through trade intensity index, does not support the claim of deterioration of trade balance post the signing of FTA.
India maintains a trade deficit with the world which has remained the biggest cause of concern for the country. Approximately more than 10% of trade deficit that India has with the World is contributed by the ASEAN.
However the trade deficit trend of India –ASEAN does not follow the similar deficit trend of India vis a vis world. It has largely remained disintegrated with India’s total deficit trend which shows that the India’s trade basket with ASEAN is diversified/distinct as compared to India’s major import commodities such as petroleum products, gems and jewellery from the world. However some inter twining, if exist is primarily because of electronic products.
Economic Survey 2016-17 opines that India’s increased trade with FTA countries is not due to diversion of imports from more efficient non-FTA countries. However a case based analysis of top 10 products imported by India from ASEAN reveal a different picture. The three major observations are-
• Rise in imports of electronic products – Few products such as machines for the reception, conversion and transmission or regeneration of voice and images (HS Code 851762); parts of telephone sets, telephones for cellular networks (HS Code 851770); and electronic integrated circuits as processors and controllers etc (HS Code 854231) saw a sudden jump in imports from ASEAN to India around the year 2009-10. As evident from trade figures, imports of these products have continued to be at high levels over the years. The electronics industry of ASEAN is the biggest gainer of India-ASEAN FTA.
• India’s skewed gains – The top 10 products which saw a jump post the FTA in India’s export to ASEAN are primarily basic food products such as meat, shrimps, groundnuts and fruits and vegetable except refined petroleum oil products (RCA>1). India’s export basket is highly concentrated with only refined petroleum contributing more than US$ 10 billion of export to ASEAN in 2018 while the rest top 10 products have an export value of below US$ 2 billion. The only product that gained an edge post the FTA is frozen bovine meat.
• Rise in import of minerals and metals – FTA between India and ASEAN has led to a sudden spike in import of copper wire and Bituminous coal from ASEAN especially Malaysia and Indonesia respectively. It also saw decrease in import of copper from Australia and Korea.
• Trade concentration of top 10 products imported by India from ASEAN – 61% of light vessels that ASEAN exports to the world are destined to India, over 40% of copper wire exported to world by ASEAN is imported by India, coal imports too are over 35%. It can be concluded that the premise that FTA has not led to diversion of imports from more efficient non-FTA countries to inefficient FTA country might not hold true. Export diversification by destination country is a widely accepted indicator of trade competitiveness of a country in a particular commodity.
|Top products imported by India from ASEAN (4 digit HS)||% share of ASEAN’s export to India vis a vis World in 2018|
|Crude petroleum oils||13.65|
|Automatic data-processing machines||3.98|
|Electronic integrated circuits||0.54|
Trade Intensity Index
WITS defines trade intensity index as the index which uses similar logic to that of revealed comparative advantage, but for markets rather than products. It indicates whether a reporter exports more, as a percentage, to a partner than the world does on average. It is measured as country i’s exports to country j relative to its total exports divided by the world’s exports to country j relative to the world’s total exports.
Trade Intensity Index is further divided in to Export Intensity Index (EII) and Import Intensity Index (III) for looking the pattern of exports and Imports.
It is revealed from Table below that India has higher trade intensity or magnitude with ASEAN as compared to trade pattern India follows with rest of the world since the value of export as well as import intensity index is more than 1. However it may be because of the geographical proximity rather than complementarity since natural trading partner theory emphasises the role played by geography in trade intensity between two countries. India’s import intensity is higher than export Intensity Index as it imports much more than export.
Contrary to the claims that FTA has deteriorated trade balance of India with ASEAN. However Import intensity index and export intensity index has followed a similar intensity pattern i.e. India’s export intensity with ASEAN was lower as compared to import intensity even before the FTA. Thus the current pattern of higher import and lower export by India may not be solely attributed to FTA, since the pattern has remained the same over the years.
Import intensity index between India and ASEAN
|Import intensity index||1.57||1.52||1.78||1.79||1.67||2.08||2.31||2.36||2.05|
|Import intensity index||1.90||1.91||2.13||1.83||2.03||2.21||2.02||2.02||2.26|
Export intensity index between India and ASEAN
|Export intensity index||1.40||1.62||1.63||1.84||1.85||1.86||1.74||1.83||1.73|
|Export intensity index||1.64||1.77||1.65||1.67||1.48||1.49||1.48||1.66||1.46|