New Delhi, Mar 12 (KNN) India has opted not to extend the most-favoured nation (MFN) status in financial services to the European Free Trade Association (EFTA) nations.

This move could restrict EFTA countries, notably Switzerland, from demanding equivalent privileges if India extends better market access in financial services to other trading partners in the future.

The recently inked Free Trade Agreement (FTA) between India and the four-nation EFTA bloc — comprising Iceland, Switzerland, Norway, and Liechtenstein - holds potential for significant economic gains.

Forecasts suggest that India could attract USD 100 billion in foreign direct investment over the next 15 years, facilitating the creation of 1 million jobs.

In return, the EFTA bloc will enjoy duty-free access to the Indian market for goods such as Swiss watches and chocolates. However, India retains the right to revoke certain duty concessions granted to EFTA countries should they fail to meet their commitments.

Expressing disappointment, an EFTA official, speaking on condition of anonymity, highlighted India's contrasting treatment, noting that while India accorded automatic MFN treatment to Australia in the financial services sector, the same was not extended to EFTA countries.

This absence of an MFN clause means EFTA nations do not have the assurance of equal treatment if India extends preferential market access to other partners in financial services.

Explaining the rationale behind India's decision, a former Indian trade negotiator, also requesting anonymity, suggested concerns about the potential repercussions of liberalising access to Switzerland, particularly regarding financial flow control and increased competition for domestic financial service providers.

As per the FTA text, all commitments in financial services align with the General Agreement on Trade in Services and the Annex on Financial Services, subject to various regulatory requirements and the terms set forth by Indian regulatory bodies.

As per the agreement, foreign banks seeking to establish branches or wholly-owned subsidiaries must adhere to criteria such as economic needs assessments, reciprocity, inclusive banking practices, and any additional prudential regulations stipulated by the RBI.

Hence, India's withholding of MFN status for EFTA nations in financial services underscores a strategic decision possibly influenced by apprehensions surrounding the impact of liberal access to the Swiss market on financial flows and domestic competition.

(KNN Bureau)