India is aiming to address a growing trade imbalance with ASEAN by revamping its existing free trade agreement. Additional Secretary in the Department of Commerce Rajesh Agrawal highlights the need for a review of the deal, citing concerns over tariff asymmetry and potential misuse.
The review, a key point in Prime Minister Narendra Modi’s ten-point plan for enhanced India-ASEAN cooperation, is expected to be completed in 2025.
Additional Secretary in the Department of Commerce Rajesh Agrawal, stressed the urgency of the review, noting that India faces higher tariff elimination for lower-order economies within ASEAN while facing lower concessions from faster-growing major economies.
The widening trade deficit between India and ASEAN, particularly the COVID-19 pandemic exacerbated the trade imbalance by disrupting supply chains and increasing the demand for imports from ASEAN. The pandemic highlighted vulnerabilities in global supply networks, prompting India to rethink its trade strategies and seek a more balanced FTA.
To strike a better balance, India is exploring a country-wise approach to negotiations and may potentially implement anti-subsidy measures.
This strategy may allow for greater flexibility in securing favourable terms, especially considering the diverse economic development levels within the ten-nation bloc.
However, the path to a revised deal is fraught with challenges. Industry experts have raised concerns over potential circumvention, whereby claims of Chinese products are being rerouted to benefit from preferential tariffs under the India-ASEAN FTA. This has led to calls for anti-subsidy measures to safeguard domestic industries.
For example, India’s Ministry of Commerce and Industry launched an anti-dumping investigation into steel imports from Vietnam, suspecting that Chinese firms were rerouting supply chains through ASEAN.
While ASEAN remains a crucial trading partner for India, accounting for approximately 11% of its global trade, the current FTA is seen as favouring ASEAN nations.
The review process has been slow, with significant delays in reaching an agreement on the scope of the revision. According to some claims, India is determined to leverage the review to address these concerns and ensure a more equitable and beneficial trade partnership with ASEAN.
For example, India has eliminated import duties on approximately 74% of tariff lines and reduced duties on an additional 14% of tariff lines, while each ASEAN member made separate offers to India.
This asymmetry in negotiation power may hinder India’s flexibility in protecting vulnerable domestic industries from competitive ASEAN imports.
The trade deficit between India and ASEAN has grown significantly over the years. In FY 2022-23, India’s exports to ASEAN were USD 44.04 billion, while imports reached USD 87.58 billion.
This imbalance is particularly pronounced in sectors like electronics and machinery.
Another significant factor of trade imbalance is the structure of the ASEAN economies, which are primarily export-oriented with robust manufacturing bases. In contrast, India has a diverse economy with significant service and agricultural sectors that may not have fully capitalized on the FTA.
Additionally, the ASEAN-India Free Trade Area (AIFTA) has led to tariff reductions that have made it cheaper for Indian consumers to buy goods from ASEAN. This has intensified the demand for intermediary goods in India for manufacturing, further widening the trade deficit.
India and ASEAN have scheduled the next round of talks concerning their free trade agreement for February 2025 in Jakarta Indonesia.
Separately, India is working with the European Free Trade Association (EFTA) to implement a free trade deal reached in March 2025.
