‘FTA utilisation low in India; compliance cost is a hurdle’

GTRI report

PTI New Delhi

India's utilisation of free trade agreement benefits remains low at just 20-30% of eligible exports, compared with 60-70% by the trade partners, due to high compliance costs and already low tariffs in partner countries, think tank Global Trade Research Initiative (GTRI) said on Tuesday.  

The think tank said that Free Trade Agreements (FTAs) have made the inverted duty structure issue harder to fix because many finished goods now enter India at low or zero duty from partners such as ASEAN, Japan, South Korea, the UAE and Australia. As a result, Indian manufacturers often pay high duties on imported inputs, especially those sourced from non-FTA countries, while competing against finished products imported duty-free under FTAs, it said.  

Citing an example, GTRI said steel and aluminium attract Most Favoured Nation (MFN) duties of 7.5-10%, but machinery, industrial equipment and engineering products made from these materials can enter India duty-free under several FTAs. Indian manufacturers, therefore, face higher input costs when competing with tariff-free imported machinery produced with globally priced inputs, it said. 

Average MFN tariffs are close to zero in Singapore and below 4% in Japan, Australia, Malaysia and the UAE.