European Free Trade Agreement (EFTA) nations are not eligible for most-favored nation (MFN) designation in the financial services sector, according to India. This implies that in the future, if India grants better market access in financial services to another trading partner, EFTA nations - including Switzerland - will not be able to demand equivalent treatment.

India inked an FTA on Sunday with the four EFTA members, Iceland, Switzerland, Norway, and Liechtenstein. Under the terms of the agreement, India could receive $100 billion in foreign direct investment over the course of 15 years, creating one million employment.

Conversely, duty-free market access to India for goods like chocolates and Swiss watches will be granted to the EFTA bloc. In the event that the pledge is not fulfilled, India has the authority to revoke some of the duty concessions granted to EFTA nations.

Australia was given automatic MFN treatment in the financial services industry by India, according to an EFTA official who asked to remain anonymous. "The fact that India was unable to even provide us with standard MFN treatment caught us off guard and disappointed us." This reached the finance ministry's highest level. However, they were at odds. Thus, the agreement does not contain an MFN clause for financial services, the official stated.

If India had later granted more market access in the financial services sector to another trading partner, the automatic MFN treatment would have automatically granted equal status to all EFTA nations. In the event of a regular (non-automatic) MFN treatment clause, EFTA would be entitled to negotiate comparable market access with India.

"Australia's financial industry is not very large. Therefore, India did not care to receive MFN treatment in the financial services sector. India did not grant EFTA members maximum financial market access (MFN) due to the perception that unrestricted access to Switzerland would result in uncontrollable financial flows. Additionally, it would have increased competition among domestic financial service providers, according to a former Indian trade negotiator who asked to remain anonymous.”

Up to the time of publication, the Finance Ministry had not responded to an Email

The General Agreement on Trade in Services and the Annex on Financial Services are followed when making commitments in the financial services industry. The terms and conditions of the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority of India, the Reserve Bank of India (RBI), and any other competent authority in India, as well as entry requirements, domestic laws, rules, regulations, and guidelines, apply to all of the commitments, according to the FTA text with EFTA.

The article states that requirements pertaining to inclusive banking, reciprocity, economic needs testing, and any other prudential standards that the RBI may specify will also apply to international banks creating branches in branch or wholly-owned subsidiary mode.

What Does it Mean

• EFTA countries, like Switzerland, can’t demand equal treatment if India offers better market access in financial services to another trading partner

• Normally, under the MFN treatment clause, EFTA would have the right to negotiate with India for similar market access

• India’s decision not to grant MFN status to EFTA might stem from concerns that liberal access to Switzerland could result in a loss of control over financial flows