“Mega External Preferential Trade Agreements and Their Impacts on Indian Economy”

Citation: Ganesh-Kumar, A. and T. Chatterjee. (2016). “Mega External Preferential Trade Agreements and Their Impacts on Indian Economy”. Foreign Trade Review. 51(1), pp.46-80.

Abstract: This study examines the impacts on India of 3 mega external PTAs from which the country is excluded using the GTAP model combined with POVCAL poverty analysis tool. The simulation results show that each of these PTAs cause considerable trade diversion. However, the impacts on India’s trade flows, domestic output, returns to factors, aggregate welfare, inequality and poverty levels are rather small. In contrast, multilateral trade liberalisation has significantly large and favourable impacts on all these variables. In particular, welfare improves by 1.7 per cent of GDP, inequality falls by over half percentage point and poverty head count is lower by 12.3 per cent over base levels under a multilateral free trade scenario. These results suggest that the country should continue with its efforts for achieving a multilateral trade agreement. At the same time, the country should hedge against the possibility that a global trade agreement does not materialise. One way to protect the country’s interest is to aggressively pursue preferential trading arrangements in parallel with key members of these three mega PTAs. This is likely to ensure that the country does not lose market share due to preference erosion.

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