Swiss Companies Set to Invest in India with $100 Billion Deal

1. In October 2024, swiss companies are increasingly looking to invest in India as a result of the Trade and Economic Partnership Agreement (TEPA) signed with the European Free Trade Association (EFTA), which includes Switzerland, Norway, Iceland, and Liechtenstein.
2. The agreement is expected to enhance trade relations and significantly reduce tariffs, making India a more attractive destination for Swiss investments.

Key Highlights of the Trade Agreement

1. EFTA, led by Switzerland, plans to invest $100 billion in India over the next 15 years.
2. The agreement aims to slash tariffs on Swiss exports, which include chocolates, watches, and machinery, thereby providing easier access to India’s vast market of 1.4 billion people.
3. India expects that the deal will enhance its exports of pharmaceuticals, clothing, and machinery.

Current Trends and Investments

1. Growing Interest from Swiss Companies:
   1. Companies like ABB (engineering) and Kuehne+Nagel (transport and logistics) are expanding their operations in India.
   2. ABB's CEO, Morten Wierod, highlighted that the company's orders in India have increased by 27% per annum over the last three years, leading to significant local investments.
2. ABB's Expansion:
   1. The company has opened 8 new projects since 2023 and has increased its workforce in India from 6,000 to 10,000 since 2020.
   2. India is projected to become ABB’s 3rd-largest market after the U.S. and China, demonstrating the country’s strategic importance to the firm.
3. Kuehne+Nagel's Growth:
   1. The logistics firm plans to increase its workforce in India from 2,850 to 4,800 and is establishing new logistics centers in key cities like Chennai, Gurugram, and Kolkata.
   2. The company’s revenues in India are growing at more than double the overall rate of the group, indicating a robust market potential.

Economic Context

1. Shifting Focus from China:
   1. The International Monetary Fund (IMF) predicts India's economy will grow by 7% in 2023 and 6.5% in 2025, outpacing China's expected growth.
   2. The shift in focus is driven by challenges in doing business in China, coupled with a more stable and promising outlook for India.
2. Changing Landscape of Swiss Investments:
   1. Data from the Swiss National Bank indicates that India outpaced China in attracting Swiss direct investment during 2021-2022.
   2. The growing Swiss interest is partly attributed to the less favorable business environment in China, exacerbated by geopolitical tensions.

Impact of TEPA:

1. The TEPA will eliminate tariffs on 94.7% of Swiss exports to India, reducing the average tariff from 22% to zero. This is expected to give Swiss companies a competitive advantage over their EU counterparts, who are still negotiating similar agreements.
2. The agreement aims to create 1 million jobs in India over the next 15 years, enhancing the overall investment climate.
3. Although the TEPA is yet to come into force (expected to be effective by late 2025 or early 2026), it promises to ease administrative burdens and provide a more favorable environment for business.

Future Prospects:

1. Support for Smaller Firms:
   1. Smaller Swiss companies, like Feintool, are also entering the Indian market, with plans to build their first factory near Pune to meet local demand for precision components.
2. Strategic Positioning:
   1. Swiss companies view the TEPA as a way to position India prominently on their investment maps, with expectations of a “red carpet” welcome for investors.

Challenges and Considerations

1. Parliamentary Approval: The TEPA still requires ratification by parliaments in Switzerland and EFTA countries before it becomes effective.
2. Market Potential vs. Current Exports: Despite the optimism, Swiss exports to India remain modest, accounting for only 1.5% of total Swiss mechanical and electrical exports in 2023.

About India-European Free Trade Association Trade Agreement : Date Signed: April 17, 2024 Agreement Name: Trade and Economic Partnership Agreement (TEPA) Significance: Fourth major trade deal for India in three years (others: Australia, Mauritius, United Arab Emirates) About the European Free Trade Association Members: Iceland, Liechtenstein, Norway, Switzerland (non-European Union) Founded: 1960, Stockholm Convention Purpose: Promote free trade among member nations Key Details of the Trade and Economic Partnership Agreement Trading Partner Rank: India is the European Free Trade Association's 5th -largest trading partner (after European Union, United States, United Kingdom, China) Largest Trading Partner: Switzerland Trade Volume (2022-2023): $18.65 billion, with a trade deficit of $14.8 billion Investment Commitment: European Free Trade Association countries to invest $100 billion in India over 15 years Scope: Covers trade in goods, rules of origin, intellectual property rights, services, investment promotion, government procurement, technical trade barriers, and trade facilitation India-European Free Trade Association Relations India and Norway Diplomatic relations established in 1947 Support for India’s membership in export control regimes Joint initiatives in blue economy and research (HIMADRI research station) India and Switzerland Treaty of Friendship signed in 1948 India is Switzerland's fourth-largest trading partner in Asia Presence of over 300 Swiss companies in India; Indian information technology firms active in Switzerland India and Iceland Diplomatic relations established in 1972 Support for India’s candidacy for permanent membership in the United Nations Security Council Memorandum of Understanding on renewable energy collaboration India and Liechtenstein Diplomatic relations established in 1993 Foreign Direct Investment inflow: $44.68 million from April 2000 to March 2020 Major Trade Agreements of India Free Trade Agreements with Neighboring Countries: India-Sri Lanka Free Trade Agreement India-Nepal Treaty of Trade India-Bhutan Agreement on Trade, Commerce, and Transit Regional Free Trade Agreements: India-Association of Southeast Asian Nations Trade in Goods Agreement South Asia Free Trade Agreement Global System of Trade Preferences Comprehensive Economic Partnership Agreements and Comprehensive Economic Cooperation Agreements: Comprehensive Economic Partnership Agreement with United Arab Emirates, South Korea, Japan (broader scope) Comprehensive Economic Cooperation Agreement with Singapore, Malaysia (focus on tariffs) Preferential Trade Agreements: Asia Pacific Trade Agreement South Asian Association for Regional Cooperation Preferential Trading Agreement Preferential Trade Agreements with Chile, Afghanistan

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