PM Modi: India-EFTA historic TEPA agreement is a “watershed moment"

The fifth-largest economy, India, and the European Free Trade Association (EFTA), the ninth-largest merchandise trader in the world, signed a historic economic partnership agreement on Sunday, 10^th March 2024.

The EFTA, which has a combined GDP of over $1 trillion, is an intergovernmental body comprising Switzerland, Norway, Iceland, and Liechtenstein – countries that are all in Europe but not a part of the EU.

The India-EFTA Trade and Economic Participation Agreement (TEPA) came into being yesterday after over a decade-and-a-half of negotiations and more than 20 roundtable meetings to establish an ‘open, fair, equitable’ trade ecosystem. The partnership aims to facilitate a deepening of investments, spur employment generation, and lead to a material reduction in tariffs.

As per the agreement, India shall expect $100 bn in investments from the EFTA over the next 15 years, and in turn, custom duties will be gradually reduced on a host of imported items over a seven-to-ten-year window to enable greater market access.

Two-way collaboration is expected in several crucial spheres including banking, digital technologies, and clean energy.

The EFTA is proposing to invest the first half of the amount within the next decade, and the balance within the following five years.

The wide-ranging document delved into a multitude of issues that would be crucial to economic ties over the coming decade including trade in goods and services, intellectual property rights, investments, technical barriers, and government procurement.

Crucially, India is seeking to leverage the sophisticated technological capabilities that are available in the EFTA member nations to build on its demographic advantage and generate approximately 1 million jobs in direct employment, particularly in the manufacturing and services sectors.

For India’s goal of becoming a developed economy by 2047, the TEPA agreement is a landmark step, while also helping to diversify trade channels given its heavy import dependence on China.

In 2022-23, India had a negative trade balance of over $100 bn with China.

Trade flows

While the EFTA bloc is looking for new growth opportunities and to serve the burgeoning Indian middle class, India is seeking to streamline the existing lopsided trade relationship.

As per a Doordarshan report, in 2022-23, India exported $1.92 bn worth of goods and services to EFTA countries, while importing nearly 8 times as much, at $16.74bn during the same year.

Indian consumers, who are experiencing fast-rising incomes in the coming decade shall have access to more affordable luxury goods and discretionary purchase items such as high-quality watches, chocolates, biscuits, and duty-free access to other consumables including seafood, fruits, coffee, and wines from the region.

Standard Chartered Bank projects Indian incomes to rise by 70% by 2030 to breach a per-capita level of $4,000.

Further, investments and key technology transfers in the agricultural space, renewable sectors, pharmaceuticals, garments, and medical instruments are expected to drive higher productivity and export competitiveness in India, particularly in food processing.

The Government of India has also invited Swiss transport companies to collaborate in the development and advancement of the Railways. 

At the same time, India shall ramp up exports of key domestic services sectors including IT, audio-visual capabilities, and the supply of skilled workers to EFTA countries.

Shri Piyush Goyal, Minister of Commerce and Industry, Government of India, stated,

However, Switzerland continued to maintain duties on the import of agriculture and dairy products, as well as several other stringent requirements around quality and licensing; while its demand for a reduction in tariffs on gold did not result in any material change.

India-EFTA business environment

With an expectation of considerable bilateral business opportunities materializing in the coming decade, the EFTA intends to establish offices in India to help coordinate operations.

In addition, the Noida International Airport in the state of Uttar Pradesh is expected to become operational later this year.

The new hub is being built under a PPP model with Flughafen Zürich AG, the operator of the Zurich airport, which may lead to improved transportation links between India's capital city and the EFTA countries.