Investment, Exports, Jobs: What will Switzerland's agreement with India bring?

"Turning point", "new deal" or "win-win": Swiss and Indian officials seem to have run out of excellent words to describe the India-EFTA free trade agreement signed this weekend after years of fierce negotiations. But are things so rosy?

India and the four members of the European Free Trade Association (EFTA) - Switzerland, Norway, Iceland and Liechtenstein - signed a comprehensive free trade agreement on March 10. The agreement, reached after 21 rounds of negotiations spanning 16 years, marks a major milestone in their economic relationship.

The pact involves significant commitments from the four smaller European countries, including a pledge to invest $100 billion (87.6 billion francs) in India to create one million jobs over 15 years. As India is now the most populous country in the world with 1.4 billion people and a growing middle class, the agreement has enormous potential. In addition, India is the fastest growing major economy with an expected economic growth rate of 8.4%.

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As part of the agreement, India has committed to immediately or gradually eliminate or reduce high tariffs on 95.3% of industrial imports, excluding gold.

India and the four EFTA countries must ratify the agreement before it can enter into force.

What does this give Switzerland?

Switzerland and India do not currently trade extensively globally, with bilateral trade estimated to reach 17.7 billion francs (provisional figure). Currently, Swiss exports to India consist mainly of precious metals, engineering, pharmaceuticals and chemicals, while imports consist mainly of chemicals, textiles, precious metals and agricultural products.

However, the agreement is expected to make it easier for Swiss companies to enter the vast Indian market. Over 300 Swiss companies, including Nestlé, Holcim, Sulzer and Novartis, currently have operations in India.

According to the State Secretariat for Economic Affairs (SECO), future opportunities for Swiss companies lie in infrastructure, construction, luxury goods, digitalization, clean technology and electromobility. Swiss manufacturers and exporters of machinery, luxury watches, chocolate, food, beverages, pharmaceuticals and medical devices could also benefit.

However, some sectors such as dairy products, soy, coal and "sensitive agricultural products" will be excluded from the agreement. The most significant EFTA export to India is gold, mainly from Switzerland, and New Delhi has said that customs duties on this commodity will remain unchanged.

What was the reception in Switzerland like?

On his return from India, Swiss Economy Minister Guy Parmelin openly expressed his satisfaction, saying the agreement would provide Swiss companies with a "competitive advantage" for years to come. Parmelen called the agreement historic, emphasizing the importance of India in expanding Switzerland's free trade agreement network and ensuring diversification. He said the elimination of customs duties is projected to result in additional exports worth about 170 million francs a year.

Martin Hirzel, president of Swissmem, the umbrella organization for the mechanical and electrical engineering sector, called the agreement a "new deal." He noted its timely emergence ahead of a possible free trade pact between India and the European Union. Highlighting the challenges posed by the overvalued Swiss franc and the industrial slowdown, Hirzel emphasized that a 20% reduction in India's customs duties would provide new competitiveness.

However, not everyone shares this optimism. Thomas Cottier, a retired professor of commercial law at the University of Bern, took a more cautious view. He believes that while the agreement may lead to increased trade with India, it will not be able to fundamentally change the situation.

Possible opposition in Switzerland

The agreement with India must be approved by the Swiss parliament. The ratification process will start soon to be finalized by 2025 at the latest.

While the agreement has received support from business circles and right-wing parties, doubts remain among left-wing factions. Socialist National Councillor Fabian Molina emphasized the potential of the investment for sustainable development and the creation of quality jobs. However, there are concerns about investments in sectors such as coal mining or deforestation of tropical forests, which require strict conditions to prevent such outcomes.

If significant political differences persist, there is a possibility that the agreement could be put to a referendum, similar to what happened with the free trade agreement with Indonesia. In March 2021, that agreement was nearly rejected by the public.