India has recently shifted its trade strategy, halting negotiations with some smaller nations such as Oman and Peru, following increasing trade imbalances with key trading partners like the UAE and ASEAN (Association of Southeast Asian Nations). This strategic pause comes amid India’s reevaluation of trade deals to ensure future agreements align better with national economic interests and reduce dependency on imports.

Key Reasons for the Pause in Trade Talks

The decision to slow down negotiations reflects multiple factors:

1. Review of Current FTAs:
   Recent trade agreements with the UAE (2022) and ASEAN (2010) have yielded higher imports than exports, leading to widening trade deficits. The concern is that certain FTAs have not been as beneficial for India as intended.
2. Trade Deficit Concerns:

• India-UAE Trade: In the April–September 2024 period, imports from the UAE surged by 52.4% to $34.5 billion, compared to the same period the previous year.
• ASEAN-India Trade: Similarly, trade with ASEAN countries in FY23 resulted in a significant deficit of $44 billion, despite a 15% rise in imports.

3.  Need for Streamlined Negotiations:
The Ministry of Commerce is developing a Standard Operating Procedure (SOP) to improve the negotiation process. The aim is to create a uniform system for future agreements, emphasizing “trade-offs” and clearly defining the “bottom line” for Indian negotiators.

The new SOP will cover multiple areas such as labour, environment, and hierarchy of negotiations, improving the consistency of India’s trade agreements.

Issues with Past Trade Agreements

The article highlights specific challenges faced by Indian negotiators:

• Inadequate Market Access: Current agreements have allowed increased imports but provided limited market access for Indian goods.
• Competitive Pressure: Some agreements with countries like South Korea and Japan have put Indian industries at a disadvantage.
• Institutional Memory Deficit: Frequent changes in government officials have resulted in poor continuity in trade discussions, creating inefficiencies.

The Impact on India’s Trade Policies

The review process involves several government departments, including the Ministry of Commerce, the Department of Economic Affairs (DEA), and external consultants like Boston Consulting Group. Through this evaluation, India aims to:

1. Minimize future trade deficits by ensuring agreements are mutually beneficial.
2. Negotiate better terms with countries offering market opportunities for Indian industries.
3. Strengthen domestic industries by carefully assessing how future deals can enhance export growth.

Future Trade Strategy

India’s revised strategy focuses on building stronger trade ties with countries where potential benefits outweigh risks. While India has paused negotiations with Peru and Oman, it has decided not to pursue a trade deal with China-led RCEP (Regional Comprehensive Economic Partnership), emphasizing its caution with agreements that could hurt domestic industries.

The government remains committed to finalizing key deals with partners such as the UK and the European Free Trade Association (EFTA). These deals are likely to undergo more rigorous review to ensure alignment with India’s long-term goals.

Trade Performance Overview (Chart)

Below is a comparison of trade growth and deficits with UAE and ASEAN over recent periods:

India’s evolving trade strategy reflects a more cautious and calculated approach to international agreements, focusing on reducing trade imbalances and protecting domestic industries. By developing a standardized framework for negotiations, the country aims to secure better deals in the future, ensuring sustainable economic growth. This shift underscores India’s intent to strike balanced agreements, prioritizing long-term benefits over short-term gains.

The new SOP-led approach, coupled with the suspension of talks with smaller countries, signals a significant shift in India’s trade policy—one that prioritizes resilience and competitiveness in an increasingly globalized economy.