India-EFTA Trade Agreement: A New Economic Chapter

Context

India has recently signed a Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association (EFTA), which will come into force from October 1, 2025.

India-EFTA Trade Agreement

• Signature Date: Signed on March 10, 2024 in New Delhi
• Entry Date: Effective from October 1, 2025
• Objective: To promote trade and investment, strengthen supply chains and stimulate economic growth
• Signatories: Commerce Minister Piyush Goyal from India and EFTA Minister for Foreign Affairs and Minister for International Cooperation and Development, Shri Narendra Modi from India. Ministers of the countries- Guy Parmelin of Switzerland, Bjarni Benediktsson of Iceland, Dominique Haessler of Liechtenstein and Jan Christian Vestre of Norway.
• Features: This is India's first such agreement which has legally binding provisions for investment and sustainable development.

Key provisions

• Investment commitment: EFTA countries will invest $100 billion over 15 years, 50 billion in the first 10 years and 50 billion in the next 5 years. This will create 1 million direct jobs in India.
• Duty reduction: India has reduced or zero duty on products like Swiss watches, chocolates, cut and polished diamonds. Switzerland has given better market access for 94.7% of India's exports (2018-2023, excluding gold).
• Products: Focus on pharmaceuticals, machinery, optical equipment and processed agricultural products.
• Sustainable development: The agreement has provisions to ensure compliance with international agreements related to environment, labour and human rights.
• Service sector: India gave concessions in 105 sub-sectors, while commitments were received from Switzerland in 128, Norway in 114, Liechtenstein in 107 and Iceland in 110 sub-sectors.
• Rules: Includes ban on business transactions, national treatment and most favoured nation provisions.

Key impacts

• Positive impacts:
  • Economic growth: Investment will lead to advances in infrastructure, manufacturing and technology.
  • Jobs: 1 million direct and 2 million indirect jobs will be created, especially in the pharmaceuticals, chemicals and machinery sectors.
  • Market access: Indian exports (e.g. organic chemicals, textiles) will get better access to EFTA markets.
  • European integration: India can access EU markets through Switzerland as 40% of Swiss service exports go to the EU.
• Negative impacts:
  • India’s trade deficit may increase especially with Switzerland as duty on gold imports remains unchanged.
  • Gains limited in some sectors (e.g. dairy, agriculture) as these are excluded from duty concessions.

Challenges

• Trade imbalance: India's trade with EFTA in 2022-23 was $18.65 billion, with $16.74 billion in imports and only $1.92 billion in exports. Gold imports are the main reason for this imbalance.
• Barriers to agricultural exports: Complex duties and quality standards in Switzerland make export of Indian agricultural products difficult.
• Minimal duty benefits: EFTA countries already have zero or low duties, limiting additional benefits to India.
• ​​Differences in regulations: Differences in regulations, standards and legal frameworks between India and EFTA countries complicate implementation.
• Data privacy: Some stakeholders (such as Medicines Sans Frontiers) have raised concerns over data exclusivity, which could impact the Indian generic drug industry.

Way Forward

• Investment Monitoring: Establish a strong monitoring mechanism to ensure achievement of investment targets
• Improving Agricultural Exports: Increase access to Indian agricultural products by improving quality and standards
• Awareness and Training: Educate businesses about the benefits of the agreement and ensure compliance
• European Market Expansion: Increase trade with the EU by making Switzerland a base
• Sustainable Development: Increase cooperation to enforce environmental and labour standards
• Technology Transfer: Encourage technology transfer from EFTA countries, especially in renewable energy and pharmaceuticals