Shaping Future FTAs - Lessons from the Investment Provisions in India's TEPA with EFTA

This paper critically examines the investment-related provisions of the India-EFTA Trade and Economic Partnership Agreement (TEPA), signed on 10 March 2024 focusing on its ambitious commitment to mobilise $100 billion in foreign direct investment (FDI) and generate one million direct jobs over 15 years in India. Using global aggregate FDI flows and India’s remittance-level FDI data, this study evaluates the feasibility of meeting TEPA’s targets, highlighting discrepancies in FDI measurement, definitional ambiguities, and the predominance of financial over Real FDI. This analysis highlights the limited investment by EFTA countries, particularly Switzerland and Norway, in recent years. The study reveals that a significant portion of reported FDI includes acquisitions and reinvested earnings, rather than fresh equity inflows or greenfield investments. This raises questions about achieving employment targets, especially in the manufacturing sector, given the global employment scale and trends of Swiss companies. This study critiques the lack of clarity in several provisions of TEPA, which are unexpected and unacceptable in an international agreement, and warns against overreliance on generic FDI inflows. The study wonders whether this was due to the hurry to beat the announcement of India’s general elections. Evidence shows that the EFTA did not wish to lose another opportunity, as had happened before the 2014 elections. Nevertheless, the study notes that the EFTA introduced safety clauses to hedge against failure. This was understandable because the EFTA had consented to the commitments only to secure an agreement that would provide tariff-free access to the Indian market. If one goes by TEPA’s provisions regarding third-country investments through the EFTA, India would be receiving global FDI flows rather than EFTA investments. The mechanism for applying remedial measures available to India, in case the targets are not met, is good only on paper and not in practice. In effect, they only enable the EFTA to prolong the period of meeting the targets for much longer than 20 years and/or to have the targets revised downwards. By treating FDI as an end in itself, TEPA ignores the conventional wisdom of bartering market access for technology and other benefits. This study calls for precise definitions, strategic prioritisation of sectors aligned with India’s developmental goals, and the establishment of robust monitoring mechanisms. India must proactively shape the operational framework of the Investment Sub-Committee to be set up under TEPA to safeguard its interests and ensure that TEPA delivers tangible benefits to India. Ultimately, this study positions TEPA as a test case for India’s evolving FDI strategy and urges the Indian policymakers to balance quantitative targets with the qualitative outcomes. It advocates for a more nuanced, evidence-based approach to future investment treaties that prioritise technology transfer, joint ventures, and indigenous enterprise development. We hope this study will serve as a timely input for India’s ongoing FTA negotiations with the EU and New Zealand, and for preparing the work plan of the Investment Sub-Committee to be set up under TEPA.