What India’s ‘quid pro quo’ strategy for trade talks

In a more mercantilist world, a clear pattern is emerging in India’s trade policy strategy: if companies or countries want freer access to the big and growing markets of the world’s fifth-biggest economy, they must offer a quid pro quo. 

Switzerland and Tesla Motors last week each managed to get India to lower its high, jealously guarded tariff walls and offer improved access to its market of 1bn-plus people.

On March 10, Switzerland, along with Norway, Iceland and Liechtenstein, finally managed to sign a free trade agreement between their European Free Trade Association and India, after 16 years and 21 rounds of talks. Separately, India’s government signed off on a plan to lower import taxes on some higher-priced, imported electric vehicles. 

In both cases, there was something substantial in it for India: a promise, or at least a possibility, of investment.

The India-EFTA Trade and Economic Partnership included a pledge by the Swiss and their smaller partners to invest $100bn in India and create 1mn jobs over 15 years — the first such binding commitment in the history of FTAs, according to Narendra Modi’s government.

At a press briefing Helene Budliger Artieda, a Swiss official, said the negotiators were guided in their work by “how can we can a balanced deal, and ‘what’s in it for India’”; the latter phrase, she said, having been uttered to her by India’s feisty commerce minister Piyush Goyal. 

“The investment promise was the carrot that sealed this deal,” Biswajit Dhar, distinguished professor at the Council for Social Development, a think-tank, says of the India-EFTA pact. 

In the case of cutting EV tariffs, Tesla had been pushing for this as a precondition for investing in a factory in India that, if built, would make smaller, lower-priced EVs. The tariff reduction would allow it to import its foreign-made and pricier cars as it scaled up. While the easing is available to any automaker who invests within three years, Indian officials acknowledge it was drawn up largely with Tesla in mind. 

New Delhi’s protectionist bent is legendary. From the “import substitution” policies of its early, socialist-influenced post-1947 governments to Modi’s current pro-business administration, India has been guided by an instinct to shield sensitive industries from competition. But pro-trade economists point to the perils of picking winners and letting them sit behind tariff barriers.

The Modi government has in fact pursued and signed trade pacts during nearly a decade in power — most recently with the United Arab Emirates and Australia, the latter of which relaxed visa regulations for Indian students at Australian universities after they graduate. 

India in 2019 declined to join the Regional Comprehensive Economic Partnership, largely for fear it would make its producers more vulnerable and cause trade deficits to swell, including with China. Liberalising too much would imperil Modi’s “Make in India” push to boost manufacturing jobs and exports, officials apparently believe. 

India’s FTA talks with the UK and EU, far larger economies with greater bargaining power, which would pose Indian industry with bigger competitive threats, have moved more slowly. Reports from the UK-India trade talks offer some indications of what India might agree to.

In 14 rounds of negotiations, UK and Indian officials tell the Financial Times, India has been pushing for greater market access for its goods, including textiles and automotives. As for services, India wants the right for more temporary work for its people in the UK — notably in IT, a sector where it has competitive skills and manpower — and the right to claw back any national insurance payments. But the talks with the UK are now on ice at least until after the Indian general election, the results of which are due on June 4.

“The biggest gain India is looking to trade off in the FTA talks on services is human mobility,” says Syed Akbaruddin, dean of the Kautilya School of Public Policy in Hyderabad.

India has also pressed the case, in its talks with the UK, EFTA and others, that it is a faster-growing economy than the richer ones it is negotiating with. So any lowering of tariffs should be asymmetrical in its favour, Goyal and other officials argue, because India is offering market access to a slice of a growing pie. The India-FTA pact serves as one example of this, where the European countries cut more tariffs than India did. 

“The world recognises there’s no other country in the world which offers a market like India,” Goyal told the FT in an interview in 2022. The Modi government is calculating, rightly or not, that the world needs it enough to offer it substantial concessions in return.

john.reed@ft.com