Trade and Economic Partnership Agreement between India and EFTA: Will it forge a new direction?

To the average citizen, international trade agreements may seem distant and abstract, but their implications permeate deeply into daily life.

After a protracted negotiation process spanning an impressive 16 years and consisting of 21 formal rounds, India and the four European Free Trade Association (EFTA) countries have, at last, inked a landmark trade & Economic Partnership Agreement (TEPA). This agreement, set against the backdrop of a rapidly evolving global economic landscape, where India now proudly stands as the world’s 5th largest economy boasting a GDP of $3.7 trillion (FY2024), has drawn significant attention. Particularly noteworthy is the timing of this agreement, coming just before India’s national elections, a move that has sparked lively scholarly debates. Despite the scepticism voiced by some quarters, this article aims to delve deep into why the India-EFTA holds substantial promise for India’s economic future.

To the average citizen, international trade agreements may seem distant and abstract, but their implications permeate deeply into daily life. For example: Indian public do not care about the Free trade agreement with EFTA unless the price of a cup of ‘Chai’ remains unchanged. Abhijit V. Banerjee and Esther Duflo in their book, “Good Economics for Hard Times- have stated ” Anything definitive about trade by just comparing countries is difficult because both growth and inequality could depend on so many factors, trade being just one of those ingredients or indeed and effect rather than cause.” Substantiating this assertion, it is evident that India’s trade initiatives alone cannot singularly determine future growth and inequality trajectories. Furthermore, this agreement is one among many international trade accords. Nonetheless, amidst India’s ambitious economic forecasts, aiming to ascend to the esteemed ranks of the world’s top three economies with a projected GDP of $5 trillion within the next three years and an impressive $7 trillion by 2030, strategic trade partnerships assume paramount significance.

The TEPA holds considerable promise for attracting substantial foreign direct investment (FDI) inflows, estimated at a remarkable $100 billion over a span of 15 years, while also potentially generating over a million employment opportunities. Notably, the agreement sets ambitious targets for increasing FDI from EFTA states, aiming for a $50 billion rise within a decade of implementation, followed by an additional $50 billion surge in the subsequent five years. This reciprocal arrangement involves India reducing tariffs on 80-85% of goods from EFTA countries, while benefiting from duty-free access for nearly 99% of its exports, including essential commodities like rice. However, sensitive sectors such as agriculture and dairy have been safeguarded to protect domestic interests from adverse impacts.The Intellectual Property Rights (IPR) commitments within the Trade and Economic Partnership Agreement (TEPA) align with TRIPS standards, indicating a high level of dedication to IPR protection. The IPR chapter, particularly with Switzerland, known for its stringent IPR standards, highlights the robustness of India’s IPR regime, according to government sources. India’s concerns regarding generic medicines and challenges associated with patent extension have been meticulously addressed within the framework of the agreement. TEPA is positioned to bolster India’s services exports, particularly in sectors where the country possesses notable strengths or interests, including IT services, business services, personal, cultural, sporting, and recreational services, as well as education and audio-visual services. EFTA offers improved access through digital service delivery (Mode 1), establishment of commercial presence (Mode 3), and clarified commitments regarding the entry and temporary stay of essential personnel (Mode 4). TEPA also includes provisions for Mutual Recognition Agreements in Professional Services, facilitating smoother recognition processes for professionals in fields like nursing, chartered accountancy, and architecture.

Critics have raised concerns regarding the potential impacts of the India-EFTA FTA on India’s flagship “Make in India” initiative, fearing that the elimination of import tariffs might disadvantage certain domestic industries lacking global competitiveness. However, it is essential to acknowledge the various challenges faced by Indian startups within this initiative, including constrained investment flows and a shortage of skilled labor. Reports have highlighted stagnating employment growth rates and structural issues affecting the labor market, emphasizing the urgent need for inclusive growth strategies. TEPA is anticipated to support the objectives of “Make in India” and Atmanirbhar Bharat by promoting domestic manufacturing across sectors such as infrastructure, manufacturing, pharmaceuticals, chemicals, and food processing. It will provide Indian exporters with access to specialized inputs, creating a conducive trade and investment environment and stimulating the export of domestically produced goods. In the services sector, TEPA offers significant potential for India to integrate into EU markets through EFTA. Switzerland, with a substantial portion of its global services exports directed towards the EU, can serve as a strategic gateway for Indian companies seeking to expand their market reach.

The promise of the TEPA lies in its potential to facilitate the creation of one million direct employment opportunities in India through investments from member countries of EFTA. Currently, India’s economy grapples with a stagnant employment growth rate, weakened employment elasticity, sluggish structural transformation, and emerging structural challenges in the labor market, including low female labor force participation and an increase in the unemployment rate correlated with education levels, as highlighted in a study conducted by D. Tripati Rao of the Indian Institute of Management (IIM), Lucknow.This free trade agreement holds the potential to address these challenges by generating jobs for skilled labor in India. The investment commitments from EFTA nations are positioned to yield a significant number of direct employment opportunities for India’s burgeoning young workforce over the next 15 years. Moreover, these investments can be complemented by enhanced facilities for vocational and technical training, further empowering the workforce to meet the demands of evolving industries and contribute effectively to economic growth and development.

India has ambitiously set a target of reaching 500 gigawatts (GW) of renewable energy capacity by 2030 as part of its commitment under the Paris Accord. This target underscores India’s commitment to transitioning towards a more sustainable and environmentally friendly energy infrastructure. However, achieving this goal requires not only significant investment but also access to cutting-edge technologies in precision renewable energy and robust research and development (R&D) capabilities. TEPA presents a valuable opportunity for India to realize its renewable energy ambitions by facilitating greater technology collaboration with EFTA nations. Through TEPA, India aims to leverage the expertise and advancements in renewable energy technologies possessed by EFTA countries to bolster its own renewable energy sector.

By fostering collaboration in R&D and technology transfer, TEPA can enable India to access innovative solutions and best practices in precision renewable energy. This exchange of knowledge and technology has the potential to accelerate the development and deployment of renewable energy infrastructure in India, thereby facilitating the transition towards a greener economy. Additionally, TEPA can serve as a catalyst for investment in India’s renewable energy sector, attracting foreign capital and expertise to support the expansion of renewable energy capacity. This influx of investment can further stimulate job creation, spur economic growth, and enhance India’s overall competitiveness in the global renewable energy market. In essence, TEPA offers a strategic avenue for India to advance its renewable energy agenda by fostering collaboration, facilitating technology transfer, and attracting investment. By leveraging the opportunities presented by TEPA, India can effectively contribute to global efforts to combat climate change while simultaneously driving sustainable economic development.

In navigating the complexities of global trade dynamics, a strategic approach entails harnessing the concept of comparative advantage, whereby industries focus on sectors where they possess relative strengths. For instance, India’s burgeoning semiconductor industry presents a ripe opportunity for expansion, necessitating significant investments and the cultivation of a skilled workforce. The India-EFTA agreement could act as a stimulant for the growth of this sector, especially as China grapples with economic challenges and a declining workforce.

With the current Indian BJP expected to secure victory in the upcoming election, India’s foreign policy outlook remains steadfast, as articulated by Foreign Minister S Jaishankar. Amidst a backdrop of global uncertainties, including the upcoming U.S. elections, simmering tensions between Russia and Ukraine, persistent instability in the Middle East, and China’s economic slowdown, India emerges as an increasingly attractive destination for foreign direct investment. Leveraging the India-EFTA agreement could solidify India’s position as the preferred investment hub in the region, bolstering its economic resilience in the face of global headwinds. In conclusion, the India-EFTA Free Trade Agreement signifies a significant milestone in India’s economic trajectory. By skilfully navigating the complexities of global trade dynamics and attending to domestic priorities, India is positioned to leverage the diverse advantages of this agreement. Through prudent policy execution and the harmonization of interests, this partnership has the capacity to usher in a period of shared prosperity, marking a significant chapter in India’s illustrious economic journey.

Archana Sharma
Archana Sharma
I am a freelance Geopolitical Research Analyst. My area of research includes Foreign policy and Space diplomacy. I hold a Master's degree in Diplomacy, Law and Business and a Bachelor degree in Electronics and communication engineering.