India signs key IPEF agreements on clean and fair economy

India has signed key agreements aimed at promoting a clean and fair economy, as well as an overarching arrangement under the US-led Indo-Pacific Economic Framework (IPEF) for prosperity. The agreements are focused to enhance clean energy, reduce greenhouse gas emissions, improve tax transparency, and combat corruption. These pacts were concluded during Prime Minister Narendra Modi’s three-day visit to the US for the Quad Summit.

Image credit: PIB

On September 21, 2024, India signed and exchanged three landmark agreements focusing on the Clean Economy, Fair Economy, and the IPEF Overarching arrangement under the Indo-Pacific Economic Framework (IPEF) for prosperity. The signing ceremony took place in Delaware, USA, during Prime Minister Shri Narendra Modi’s three-day visit to the United States for the Quad Summit. 

The Indo-Pacific Economic Framework (IPEF) was launched by US President Joe Biden on May 23, 2022, in Tokyo, Japan. The IPEF aims to enhance economic engagement and cooperation among member countries to foster growth, economic stability, and prosperity in the region. The framework is organized around four pillars: Trade (Pillar I), Supply Chain Resilience (Pillar II), Clean Economy (Pillar III), and Fair Economy (Pillar IV). 

Following the signing of these agreements, India has formally joined all the components of the framework to which it had previously agreed. India is now a signatory to three of the four IPEF pillars. India ratified the Agreement on Supply Chain Resilience (Pillar II) in February 2024 and holds observer status in Trade (Pillar I), as the current terms are viewed as less favourable for the country.

The 14 member countries are: Australia, Brunei, Fiji, India, Indonesia, Japan, the Republic of Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, Vietnam, and the USA.  Together, they represent 40% of the world’s economic output and 28% of global trade.

The agreements

According to a statement from the commerce ministry, the agreements will facilitate the development, access, and establishment of clean energy and climate-friendly technologies; catalyse investment; and strengthen measures for anti-corruption, tax transparency etc., ultimately improving the business environment.

IPEF Clean Economy Agreement (Pillar-III)

The Clean Economy Agreement aims to promote technical cooperation, workforce development, capacity building, and research collaborations among IPEF partners. It focuses on facilitating the development, access, and deployment of clean energy and climate-friendly technologies, with the goal of enhancing energy security, accelerating energy transition, increasing climate resilience, and reducing greenhouse gas (GHG) emissions. 

This agreement will support investments, project financing (including concessional financing), joint collaborative projects, and workforce development. It will provide technical assistance and capacity building, particularly for Micro, Small, and Medium Enterprises (MSMEs), to help integrate Indian companies into global value chains, especially within the Indo-Pacific region. The agreement’s initiatives will be carried out through collaborative actions, such as Cooperative Work Programmes, the IPEF Catalytic Capital Fund, and the IPEF Accelerator.

IPEF Fair Economy Agreement (Pillar-IV)

The Fair Economy Agreement is designed to establish a more ‘transparent and predictable trade and investment environment’ across the Indo-Pacific region. The IPEF partners will work together to prevent and combat corruption, including bribery, and to support efforts to improve tax transparency, information exchange, domestic resource mobilization, and tax administration.

This agreement focuses on enhancing information sharing, facilitating asset recovery, and strengthening cross-border investigations and prosecutions. It aligns with India’s goals of fighting corruption, money laundering, and terror financing. The agreement emphasizes the importance of Technical Assistance and Capacity Building (TACB) to achieve its objectives and ensure the effective implementation of anti-corruption measures. Partners have committed to implementing TACB initiatives to strengthen anti-corruption efforts and improve the efficiency of tax administration.

Overarching IPEF Agreement

The Overarching IPEF Agreement serves as an administrative framework, establishing a Ministerial-level oversight mechanism to guide the implementation of the various IPEF agreements. It provides high-level political oversight, offering direction and ensuring the alignment of these agreements with the vision and mandate set by IPEF leaders. 

This agreement will provide identity to the group and longevity to the IPEF partnership by establishing a formal mechanism and a forum for Ministerial discussions on emerging issues. It aims to support the effective implementation of subject agreements (Pillars II-IV), that hold the potential to enhance India’s productive capacity, promote integration into supply chains, and foster innovation, in line with the “Atmanirbhar Bharat” (Self-Reliant India) vision.

Earlier this month, the Union Cabinet, chaired by Prime Minister Shri Narendra Modi, approved the signing and ratification of three agreements focused on a Clean Economy, Fair Economy, and the overarching IPEF Agreement. These agreements were signed by other IPEF members during the Ministerial meeting in Singapore on June 6, 2024, but India did not formally sign at that time as its domestic approval process was still in progress.

IPEF to Boost Investment: Under the Clean Economy (Pillar-III) Agreement, IPEF partners are focused on catalyzing investment in green technologies and reducing greenhouse gas emissions through various initiatives, including annual business matching events under the Investor Forum. 

The first forum was held in Singapore on June 5-6, 2024. A key development from this event was a Memorandum of Understanding (MoU) among companies from India, Singapore, and Japan, resulting in Singapore-based Sembcorp committing to invest Rs 36,238 crore in a state-of-the-art green ammonia plant in Thoothukudi. 

During the inaugural forum, IPEF partners identified priority infrastructure projects valued at US$ 23 billion (Rs 1.91 lakh crore), with US$ 4 billion (Rs 33,200 crore) from India, which presents potential opportunities for investment in some Indian renewable energy companies. The United States International Development Finance Corporation (DFC) committed US$ 1.5 billion (Rs 12,450 crore) to support initiatives related to energy transition, climate investment, and digital inclusion. 

The agreements signed on September 21 in Delaware in the US, underscore India’s growing role in global partnerships, particularly in the Indo-Pacific. They aim to enhance India’s participation in global value chains and support its transition to a greener economy, amid a rising emphasis on climate action, transparent governance, and fair-trade practices. However, the think tank GTRI noted that the standards and regulations being discussed in the IPEF are mostly already in place in the U.S. and OECD countries. If India adopts these standards without sufficient preparation, it risks being obligated to comply not only with IPEF but also with future trade agreements involving the EU, UK, and others. Therefore, India must rapidly develop its own domestic standards to avoid being at a disadvantage in international negotiations.