Current ASEAN group which has hurt India fiscally.

Topic: BusinessAccounting
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Last updated: August 26, 2019

CurrentScenario of Free Trade in India:Free Trade Agreements (FTAs) are agreements betweencountries to reduce or remove barriers to trade which includes the tariff barriers,i.e., taxes, and the non-tariff ones, i.e.

, regulatory laws. Free trade ispromoted by institutions like the World Trade Organization (WTO) and thus, in anemerging superpower such as India, FTAs deserve focus.Indo-ASEANFree Trade Agreement:The “Look East Policy” that was initiated in thecountry with the beginning of economic reforms grew to an “Act East Policy” withchanges in government and the subsequent reforms in the political scenario ofthe country.

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The ASEAN stands for The Association of Southeast Asian Nations.Trade relations between India and the Southeast Asian countries go back many years.The creation of the Indian-ASEAN trade agreement dates back to the year 2003and the enactment of the Free Trade Agreement in Goods occurred in the year2010. Subsequently, the trade relations between the nations grew more rapidlyexchange of goods and investments increased. The ASEAN-India Free Trade Agreement has beencompletely enacted on 1st July 2015 with entry into the services andinvestments sector. India stands to gain from this perspective since the servicessector in India has always been strong.

The ASEAN countries and India togetherconstitute one of the largest economic regions with a population of 1.8 billion.ASEAN group is India’s fourth largest trading partner accounting for 10.2% of India’stotal trade and 12.5% of the country’s investments. The ASEAN countries mostlyhave manufacturing based economies which perfectly complement the service basedeconomy prevalent in India.

However, there are some major challenges in this FTA.The Indo-ASEAN FTA has benefitted the Southeast Asian countries more than ithas benefitted India. The domestic manufacturers of the country are strugglingto keep up with the cheaper goods from various other countries such as rubberfrom Malaysia and palm oil from Mexico. Further, the agreement in services hasnot reaped many benefits for India since some member nations have not ratifiedtheir FTA in services (e.g.: Philippines).

This has led to a trade deficit withthe ASEAN group which has hurt India fiscally.RegionalComprehensive Economic Partnership: This comprises of 10 members of the ASEAN group and 6other countries which include South Korea, China, Japan, India, New Zealand andAustralia. If this agreement were to be negotiated and enforced it would covera population of 3 billion, and account for as much as 40% of the world’s trade.The agreement aims at tariff liberalization so as to promote easier access tomarkets.

The advantages that may result from this FTA includebenefits in terms of the FTA for services which is one of the most developedsectors in India. Also, since India has ASEAN agreement in place with countriessuch as Japan and South Korea, this FTA will complement the existing agreementsof the country. However, there are also some challenges arising from this FTA.If Japan pressurizes for the agreement in intellectual property rights, Indiawill lose its position as a pharmaceutical hub and medicines will becomeexpensive in the country. Also, since the agricultural sector in India is nowhereas developed as the other countries, it will suffer a setback due to floodingin of cheaper goods from other countries.

This will also be a major hit on theMake in India programme.SouthAsian Free Trade Agreement:Abbreviated as SAFTA, this trade agreement was aimedat improving the relations between the SAARC nations, i.e., Nepal, Bhutan,Afghanistan, India, Pakistan, Bangladesh, Maldives and Sri Lanka. This FTA firstbegan as a preferential trade agreement in 1993 and finally became a Free TradeAgreement which was enacted in 2006.

In order to improve the economic and traderelations amongst the member nations, although this FTA was signed nearly elevenyears ago, this FTA has not contributed to any significant trade growth in themember nations. Many goods and services have been included in the “sensitivelist” and thus are immune to tariff concession since the member nations are afraidof losing out on domestic trade. This also hurts the trade prospects due toSAFTA.

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