The challenge lies elsewhere.

Despite a host of Free Trade Agreements (FTAs) being in place, India’s export sector is yet to hit the jackpot.

Reason? A large number of exporters continue to remain oblivious to the finer nuances of trade pacts while many are reluctant to take advantage of them due to tedious paperwork and stringent disclosure norms, among others.

“As lakhs of exporters refrain from utilising the framework of the trade pacts, the blow to them is even more amid the current geopolitical situation,” a senior government official told The Secretariat.

Wider Trade Deficit

Now imagine this: India has a trade deal with a country, domestic exporters are reluctant to take advantage of the framework, but the partner nation utilises the same. What would this lead to?  A wider trade deficit.

India’s trade deficit has been steadily rising. In April India’s merchandise trade deficit widened to US$ 28.38 billion from US$ 21 billion in March.

While that was largely due to the rise in global crude prices, the fact remains that India has been struggling with yawning trade deficits for years.

Sources said the immediate focus for the government should be to incentivise exporters to utilise the trade deals.

“The trade deficit is bound to be widening with the sharp increase in global crude and energy prices, but yet, until the exporters utilise the benefits and advantages of the trade pacts, the effort goes waste and the problem gets amplified,” the official said.

India’s Trade (Source:PIB)

The government has been trying to create awareness through various programmes, but this needs to be taken up in a more structured manner, the sources pointed out. “The government is aware of the issue and is trying to figure out ways to tackle this,” the official said.

The geopolitical and geoeconomic risks have further increased India’s trade problems amid the low utilisation of the trade pacts. 

A recent CII note said that a lower utilisation rate would mean a multi-billion-dollar opportunity cost, which is also reflected in India’s widening trade deficit with its FTA partners.

According to reports, more than 65%-70% of the country’s exporters have failed to take advantage of these pacts. India’s utilisation of the trade pacts stands at a mere 30%. Contrast this with other emerging economies. The utilisation rate is about 50% while for developed countries it is more than 70%.

“What is interesting to note here is that many of the exporters are content with the scale of their businesses and have no urge to expand. So, they are reluctant to take advantage of the trade pacts,” a government official pointed out.  

India-Oman Trade Pact

Meanwhile, the deepening of the crisis around the Strait of Hormuz - with the US and Iran yet to strike a peace cord, Oman will serve as the gateway for India not only to other West Asian nations but also to several parts of Africa. 

Importantly, access to Oman, which opens into the Arabian Sea and the Gulf of Oman, is not dependent on the Strait of Hormuz.

Besides the trade pact with Oman, Commerce and Industry Ministry Piyush Goyal also stated that talks with the US have been progressing well, and all major points have been settled.