“Mega External
Preferential Trade Agreements and Their Impacts on Indian Economy”
Citation: Ganesh-Kumar, A. and T. Chatterjee.
2014. “Mega External Preferential Trade Agreements and Their Impacts on Indian
Economy”. CUTS Discussion Paper, CUTS International, Jaipur.
Abstract: This Discussion paper examines the
impacts on India of three mega external preferential trade agreements (PTAs)
from which the country is excluded using the Global Trade Analysis Project
(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 gross domestic product (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, as suggested by the
results for the non-member Southeast Asian countries under the TPP
(Trans-Pacific Partnership) scenario.