Context
India to begin formal negotiations for a free trade agreement with the Russian-led Eurasian Economic Union (EEU). The EEU has exchanged trade data with the Indian side ahead of the start of the negotiations.
- The joint feasibility study for the FTA was done way back in 2016 and this has been followed by another study by India’s Exim Bank.
About Eurasian Economic Union
- Membership: It is an economic union comprising five post-Soviet states in Eurasia, namely Russia, Kazakhstan, Belarus, Armenia, and Kyrgyzstan.
- Established: The Treaty on the Eurasian Economic Union was signed on 29 May 2014 and was formally established on 1 January 2015.
- Potential: It is an integrated single market with 183 million people and combined GDP of over $2.4 trillion as of 2023.
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- India and EEU:
- Trade:
- Russia: It is the top most trading partner of India in the bloc, with bilateral trade worth $49.4 billion in FY23 skewed in favour of Russia.
- India’s exports: It stood at $4.26 billion in FY 2024, up from $3.15 billion exports previous year with top exports item include pharma & drugs, iron & steel, processed minerals, marine products, telecom instruments and electronic machinery.
- India’s imports: It stood at $61.42 billion in FY 2024 up from $46.21 billion imports in FY23, with top imports from Russia include crude oil and petroleum products, coal, fertilizers, vegetable oil, pearl, iron & steel and newsprint
- Other 4 countries: Kazakhstan follows a close second with bilateral trade of $641.62 million. Followed by Armenia, Belarus,and Kyrgyzstan with $134.26 million, $111.81 million, and $56.56 million, respectively, in 2022-23.
- Significance:
- For Russia: To circumvent Western sanctions following Ukraine invasion which have impacted its trade and economy and cut off access to prominent Western-backed financial systems example: The SWIFT ban
- The sanctions have led to an increase in local currency usage for settlement of trade between Russia and its trading partners, including India.
- Greater Market Access: Domestic exporters from sectors like engineering goods, electronics and agriculture can benefit from the agreement. India is also looking for greater investments in the energy sector.
- Example: As India is becoming a base for mobile handset manufacturing, Russia has become a significant buyer.
- Greater Access to Crude: Russia has became the biggest source of cheap crude oil for India due to western sanctions due to Ukraine war. The surge of crude imports has led to a huge trade deficit with the close strategic partner.
Free Trade Agreements (FTAs)
Free Trade Agreement is a pact between two or more countries to reduce barriers to trade ie. goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
- Propounded by: This view was first ideated in 1817 by economist David Ricardo in his book, “On the Principles of Political Economy and Taxation.”
- Classification: FTAs can be categorized as:
- Preferential Trade Agreement (PTA)
- Comprehensive Economic Cooperation Agreement (CECA)
- Comprehensive Economic Partnership Agreement (CEPA)
India and FTAs:
- Trade promotion Tool: FTAs have emerged as the most important trade promotion tool for India as said by a recent report by economic think tank Global Trade Research Initiative (GTRI)
- Current Status: India has 14 active FTAs with individual countries and trading blocs covering 25 countries.
- India – EFTA: India signed the latest FTA with the four-nation European Free Trade Association that includes Switzerland, Norway, Iceland and Liechtenstein.
- Future scope: India targets to have an FTA with all major world economies in FY 2024-25 and is in the advanced stages of negotiations with countries like UK, Oman, USA, the EU, Switzerland, Norway, Russia, Sri Lanka and Peru.
- The FTAs that are nearing completion include ones with the UK and Oman.
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May 18, 2024
