Monday, July 7, 2014

Budget 2014-2015: Free Trade Agreements - Rajeev Upadhyay

Free Trade Agreements

Government of India has entered into free trade agreements with many countries but most of the FTAs are not in favor country and those needs to be reviewed. From the trend line of the below graph for the period of 2008 to 2013, it is clear that country’s balance of trade situation has worsen in these years. This indicates that we have imported more from the other countries and exported less and this gap is widening although free trade agreements have been entered into with aims of plugging this gap. And this increasing gap is not good for the exchange rate for Indian rupee at all.

There are a number of economists who favor and advocate free trade agreements claiming that it is beneficial for both the economies. With the opening up economy a lot of foreign money comes to economy and this has been the case with India too. And it helps economy to huge extent. But it seems to be not true in case of India.

If we look as longer period from 1991 when liberalization of Indian economy started, it is clear that situation has worsened more during this period. From the below trend line graph, it can be concluded that it has negative impact on net export from India. Till 2003-2004 there was no huge gap in exports and imports but once India followed the path of bilateral economic ties and free trade agreements in 1998 with Sri Lanka, the gap between export and import rose sharply. In most of the trade agreements (bilateral or multilateral) are tilted in favour of the other countries resulting extra burden on Indian rupee. So on the basis of balance of trade one may say that free trade agreements had not been beneficial for Indian economy as a whole. Although it is not possible to scrap these agreements but time has come when these agreements must be reviewed (mainly FTA with China).


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