Are free trade agreements to blame for India’s exports fall?

Free Trade Agreements (FTA) were supposed to help India increase its exports and imports. However, as it turns out, only imports seem to be increasing as of now.

For the 18th consecutive month, India’s merchandise exports declined in May to $22.17 billion, down 0.79%, as against $22.35 billion in the same month of last year.

Moreover, there has been a constant decline in exports from South Asia.

India has a South Asian Free Trade Agreement (SAFTA) with Bangladesh, Bhutan, the Maldives, Nepal, Pakistan, Sri Lanka and Afghanistan.

Apart from these, ASEAN or Association of Southeast Asian Nations, is also a free trade area with India which includes Indonesia, Malaysia, Singapore, Thailand and Vietnam.

FTAs are arrangements between two or more countries or trading blocs that primarily agree to reduce or eliminate customs tariff and non-tariff barriers on substantial trade between them.

A cursory look at India’s trade data for the month of May shows that the country’s exports from countries it has an FTA with have under-performed. According to a report dated June 14, 2016 by State Bank of India, it seems that FTAs have led to increased imports growth by India rather than exports growth. The report looked at the bilateral trade data two years prior to signing of FTA and two years after

Before FTAs were signed, exports growth was 20.37% (South Asia) and 15.88% (Thailand). However, after adopting the agreement, growth in Indian exports dropped to 13.86% in South Asia, 14.22% in Sri Lanka, 13.84% in Thailand and 3.06% in Malaysia.

Imports South Asia surged 41.16% from 4.83%, 17.4% increase from Sri Lanka, Thailand saw an export rise of 41.05% as against 7.39%.

SBI report said, “In only Japan’s case, India’s exports growth to the country increased after signing of the FTA.”

It further said, “If only exports are considered, India has registered a decline in exports growth to South Asia, Thailand and Malaysia.”