Trade Deficit Expands for India with ASEAN, South Korea, Japan FTAs


TheThe analysis conducted by the Delhi-based think tank Global Trade Research Initiative (GTRI) indicates that India's trade deficit in goods with ASEAN member countries, South Korea and Japan grew significantly more than its overall global trade deficit following the implementation of free trade agreements (FTA) with these countries. According to the India FTA Outlook 2024 Report from GTRI, the merchandise trade deficits of India expanded by 302.9% with ASEAN, 164.1% with South Korea, and 138.2% with Japan, in contrast to an 81.2% increase in the global deficit. This assessment is based on data from the period before the FTAs (2007-09) and recent trade data (2020-22). The FTAs with these countries were signed by India in 2010-2011.

The GTRI report highlights a discrepancy in India's trade performance with its FTA partners, noting that exports have grown at a slower pace compared to imports. For instance, while exports to ASEAN increased by 123.9%, imports surged by 175.7%. Similarly, with Japan, exports grew by 56.4%, and imports by 98.5%. In the case of South Korea, India's exports rose by 89.1%, while imports grew by 127.3%. The report attributes India's less robust export performance to higher tariffs domestically and comparatively lower tariffs in its FTA partner nations. It emphasizes that many Indian firms opt against utilizing the FTA route when import duties are already low, as the associated compliance costs often outweigh the tariff benefits. For example, several imports from India's FTA partners are subject to zero or low Most Favoured Nation (MFN) duties, including Singapore (0%), Japan (2.4%), Malaysia (3.5%), Vietnam (5.3%), Mauritius (1.1%), UAE (3.5%), and Australia (2.6%).

This scenario hampers the additional market entry opportunities that FTAs could offer Indian exporters. Conversely, India maintains higher import duties, so the elimination of these duties under FTAs provides a pricing advantage to products from FTA partner countries", as emphasized by the report. The report also warns that considering India's historical trade agreements, the factors leading to India's subpar export performance with the three FTA partners (ASEAN, Japan, and South Korea) - such as low MFN import duties and existing zero or low duties on most imports from FTA partner countries - remain pertinent for potential new FTA partners.

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