India-European free trade pact to come into force on Wednesday

The much-anticipated India-European Free Trade Association (EFTA) Trade and Economic Partnership Agreement (TEPA) will come into effect on Wednesday.

The agreement was signed on 10 March 2024 in New Delhi. TEPA is a modern and ambitious agreement that incorporates, for the first time in any Free Trade Agreement (FTA) signed by India, a commitment linked to investment and job creation.

The agreement comprises 14 chapters with the main focus on market access related to goods, rules of origin, trade facilitation, trade remedies, sanitary and phytosanitary measures, technical barriers to trade, investment promotion, market access on services, intellectual property rights, trade and sustainable development and other legal and horizontal provisions.

The EFTA’s market access offer under TEPA covers 100% of non-agri products and a tariff concession on Processed Agricultural Products (PAP). Sensitivity related to PLI in sectors such as pharma, medical devices & processed food etc. has been taken while extending offers.

The agreement goes beyond goods and services and is committed to promoting investments to increase the stock of foreign direct investments by $100 billion in India in the next 15 years, and to facilitate the generation of 1 million direct jobs in India, through such investments.

EFTA is an important regional group, with several growing opportunities for enhancing international trade in goods and services. It is one important economic bloc out of the three (the other two – EU & UK) in Europe. Among EFTA countries, Switzerland is the largest trading partner of India, followed by Norway.

The TEPA will empower India’s exporters by providing access to specialized inputs and creating a conducive trade and investment environment. This would boost exports of Indian-made goods as well as provide opportunities for the services sector to access more markets.

As per Article 7.1 of TEPA, the EFTA States shall aim to increase foreign direct investment (FDI) from their investors into India by $50 billion within ten years from the entry into force of the agreement, and an additional $50 billion in the succeeding 5 years, amounting to a total of USD 100 billion over 15 years. Concurrently, the EFTA States shall aim to facilitate the generation of 1 million direct jobs in India resulting from these investment inflows.

This investment commitment explicitly excludes foreign portfolio investment (FPI), focusing on long-term capital for productive capacity building.