Assessment of a Potential CECA between India and BKRCU (BKRCU-India CECA Study)

The slow progress of trade negotiations at the World Trade Organisation has led to an increase in emphasis on preferential trading agreements for the purpose of gaining immediate market access. Although PTAs are usually driven by economic considerations, geo-political and strategic considerations also play a significant role in their formulation.

To bolster trade and economic relations, India has entered into various trade agreements till date. The nature of these agreements varies from a free trade agreement to the more comprehensive economic cooperation agreement, depending on feasibility and India’s strategic interests.

Such FTAs and “FTA Plus” agreements appear to have had a positive influence on Indian economic growth (which climbed to new highs of around 6 percent per annum in the 1990s and then increased further to around 9 percent in the 2-3 year period preceding the recent global economic recession) as these have positively influenced and enhanced Indian trade in goods and services and inflows and outflows of foreign direct investment.

The trajectory of India’s economic and trade relations with CIS (Commonwealth of Independent States, which were part of the United Soviet Socialist Republic) countries can be divided into two phases – one preceding the dissolution of the USSR, and the other after formation of CIS in 1991. However, it needs to be iterated that India’s engagements with the USSR before its dissolution were based on strategic considerations as well as economic benefits. The importance given to strategic considerations has weakened in the second phase.

Both regions (CIS countries and India) now have market based economies and are looking for enhancing trade and economic cooperation with other countries on the basis of comparative advantage, the magnitude of transaction costs, ease of export finance etc. Though relations between India and CIS countries have remained close and cordial because of cultural and historical linkages, trade between India and the CIS region is a mere fraction of what it was in the 70s and 80s.

Though trade between India and CIS countries is low, it is picking up and this upward trend can be given an impetus through CECAs. This impetus would consist of both deepening economic ties with CIS countries already engaged with India to a considerable extent as well as fostering new economic ties with others. In value terms, India’s total trade with the CIS region was recorded at US$8.5 billion in 2008-09, up from $5.53 billion in 2007-08. This upward trend in trade can be attributed to increases in both Indian exports and imports – to illustrate, the former rose from $1.5 billion in 2006-07 to $1.9 billion in 2008-09, and the latter from $3.9 billion to $6.6 billion over the same period.

The significance of opportunities for trade expansion presented by CIS countries to India is also indicated by the fact that intra-regional trade accounts for a very low share of the total trade of the CIS group. In other words, the international trade of these countries is oriented to outside the region. To illustrate, intra-regional trade is limited to less than 20% of the total exports originating from the region while only around 25% of country imports are supplied from within the region.

A preliminary assessment points to various benefits of an Indian CECA with CIS countries, particularly with the Belarus-Kazakhstan-Russia Customs Union are as follows:

While India has definite advantages in some sectors such as IT and telecom, and possesses trained manpower and technical expertise in various fields which can benefit CIS countries, some CIS countries are in a good position to cater to India’s energy needs, and stimulate growth in other crucial sectors of the Indian economy.

Given the large size of the market in both India and the CIS group of economies, existing cordial economic and political relations between the two, as also the unexploited potential for mutually beneficial trade and investment, there is every reason to believe that both regions would gain immensely from comprehensive trade and investment agreements. Such cooperation would lead to growth in markets in both India and the CIS region. The combined market could touch nearly $3 trillion with the support of a 1.5 billion strong population and growth in per capita disposable income.

Various economic agreements link India with the Russian Federation, Armenia, Georgia, Ukraine and Lithuania. Joint Commissions with CIS Countries have also been formed to promote trade and business relations between India and CIS countries. The “Focus: CIS Programme” has been introduced in 2003 to leverage business interests in both the CIS region and India and thus boost bilateral trade.

Finally, Belarus, Kazakhstan, Russia and Tajikistan have also supported India’s bid for a seat in an expanded UN Security Council and are thus important strategic partners