New Delhi: India and the four-nation European bloc, the European Free Trade Association (EFTA), signed a groundbreaking free trade agreement on Sunday. The EFTA members, comprising Iceland, Liechtenstein, Norway, and Switzerland, have committed to an investment of $100 billion over the next 15 years, aiming to create one million jobs in India.
Under the Trade and Economic Partnership Agreement (TEPA), the member countries of the bloc have pledged an investment of $50 billion for the initial ten years following the agreement’s implementation. An additional $50 billion is committed for the subsequent five years.
An official highlighted a provision in the agreement that allows India to adjust or suspend duty concessions to the EFTA countries if the proposed investments do not materialise for any reason. It’s important to note that these investments exclude foreign portfolio investments.
Prime Minister Narendra Modi said the signing of the trade agreement is a “watershed moment” as it symbolises shared commitment to open, fair and equitable trade.
The agreement was signed after almost 16 years of negotiations, which began in 2008 but were put on hold in November 2013. Talks resumed in October 2016, and 21 rounds of negotiations were held before its conclusion. It is expected to take around a year for the agreement to come into force due to the elaborate ratification process in different countries. As per the agreement documents, India is committed to creating a conducive environment for Foreign Direct Investment (FDI), while also considering the need to identify, assess, and mitigate potential security or public order risks.
In a media briefing post the agreement signing, Commerce and Industry Minister Piyush Goyal highlighted the compelling opportunity for EFTA businesses to invest in India, given the country’s fast-growing economy, skilled workforce, and demographic dividend. He mentioned the potential addition of about $30 trillion to the national GDP in less than 30 years.
Goyal stated that considering India’s compounding growth, the country could target $100 billion investments in the next 15 years. This investment commitment comes from the private sector of EFTA nations, following extensive engagement.
When questioned about the mechanism to track this investment commitment, Goyal emphasised that the agreement is based on trust and provides the necessary tools to ensure that investments materialise. He assured that the agreement addresses the potential effects if the investment doesn’t come in or if growth doesn’t meet the projected level.
Goyal expressed confidence that if growth and certainty are maintained, the agreement will lead to investment flows, possibly larger than estimated. In case of any shortfall in investments, a robust mechanism has been established for both sides to mutually work out the steps to be taken.
Commerce Secretary Sunil Barthwal mentioned that a business forum would discuss how to spur investments and guide businesses in making investment plans. He asserted that these projections are based on firm commitments and not just a wish list, expressing confidence that these projections will materialise.
The agreement has 14 chapters, including trade in goods, rules of origin, intellectual property rights (IPRs), trade in services, investment promotion and cooperation, government procurement, technical barriers to trade and trade facilitation.
Under the agreement, almost all domestic industrial goods will gain duty-free access in EFTA nations, with duty concessions also being given on processed agricultural products. India, in return, is offering 82.7 per cent of its tariff lines or product categories, covering 95.3 per cent of EFTA exports. More than 80 per cent of these imports are gold. However, India has not touched the effective customs duty on gold, which stands at 15 per cent, but has reduced the bound rate by one per cent to 39 per cent.
India will also provide duty concessions on certain production-linked incentive (PLI) sectors like pharma, medical devices, and processed food. Sectors such as dairy, soya, coal, and sensitive agricultural products are kept on the exclusion list, meaning there will be no duty concessions on these goods.
In the services sector, India has offered 105 sub-sectors to the EFTA, including accounting, business services, computer services, distribution, and health. India has secured commitments in 128 sub-sectors from Switzerland, 114 from Norway, 107 from Liechtenstein, and 110 from Iceland. Indian services will get a boost in sectors such as legal, audio-visual, R&D, computer, accounting, and auditing.
The agreement will empower Indian exporters to access specialised inputs and create a conducive trade and investment environment. This will boost exports of Indian-made goods and provide opportunities for the services sector to access more markets. It will also facilitate technology collaboration and access to world-leading technologies in precision engineering, health sciences, renewable energy, innovation, and R&D.
Domestic customers will soon have access to high-quality Swiss products such as watches, chocolates, biscuits, and clocks at lower prices as India will phase out customs duties on these goods over a period of time. Some famous Swiss watch brands include Rolex, Omega, and Cartier. Nestle, a Swiss brand and a major player in the Indian FMCG industry, manufactures chocolates in India.
India-EFTA two-way trade was $18.65 billion in 2022-23 compared to $27.23 billion in 2021-22. The trade deficit was $14.8 billion in the last fiscal. Switzerland is the largest trading partner of India in the bloc, followed by Norway. The bilateral trade between India and Switzerland stood at $17.14 billion in the last fiscal. In 2022-23, India’s trade deficit with Switzerland was $14.45 billion.
India has received about $10 billion of FDI from Switzerland between April 2000 and December 2023, making it the 12th largest investor in India. The FDI inflow was $721.52 million from Norway, $29.26 million from Iceland, and $105.22 million from Liechtenstein during the same period.