Image: Shutterstock
India is rapidly expanding its Free Trade Agreements (FTAs) to open new markets and boost exports. With over 350 FTAs in force globally, these agreements help reduce trade barriers like tariffs, making trade more efficient.
Over the past five years, India has signed FTAs with Mauritius, the UAE, Australia, and EFTA nations (Switzerland, Norway, Iceland, and Liechtenstein), while advancing negotiations with the UK and Oman.
However, while FTAs offer opportunities, their effectiveness depends on strategic execution, addressing trade imbalances, and navigating new regulatory challenges imposed by developed economies.
Overall, India now has 14 trade agreements covering 25 countries, including ASEAN, Japan, and South Korea. It is also negotiating deals with over 50 more countries and has six smaller trade agreements with 26 nations.
India has also joined the US-led Indo-Pacific Economic Framework (IPEF), which focuses on regulatory cooperation but does not include tariff cuts like traditional FTAs.
Soon, India will have FTAs with all major economies except China. However, under the Asia-Pacific Trade Agreement, India and China do have limited tariff concessions on about 25 percent of tariff lines.
Also Read: Southeast Asia In A Trump 2.0 World
Changes in India’s FTA Strategy
India’s current FTA strategy is different from the past in two key ways:
Shift in focus: Earlier, India prioritised FTAs with eastern countries like ASEAN, Japan, South Korea, and Australia. Now, after completing key agreements in the east, India is focusing on FTAs with Western countries such as the UK, EU, USA, Switzerland, Norway, and Canada (though talks with Canada are on hold).
Inclusion of new areas: Unlike earlier FTAs that mainly focused on trade in goods and services, agreements with developed countries now include non-trade areas like sustainable development, digital trade, intellectual property rights (IPR), labour, gender, MSMEs, government procurement, and competition.
How FTAs have performed?
From FY2019 to FY2024, India’s exports to its 21 FTA partners grew by 14.48 percent, from $107.2 billion to $122.72 billion, while imports rose by 37.97 percent, from $136.2 billion to $187.92 billion. These partners include ASEAN, South Korea, Japan, UAE, Australia, Mauritius, and six SAFTA countries.
A closer look at India’s FTAs with ASEAN, South Korea, and Japan shows two key trends: First, India’s trade deficit with these partners has grown much faster than its overall global trade deficit. From the pre-FTA period (2007-09) to recent years (2020-22), trade deficits surged by 302.9 percent with ASEAN, 164.1 percent with South Korea, and 138.2 percent with Japan, compared to an 81.2 percent increase in India’s global trade deficit. This trend continued in 2023.
Also Read- Trump’s reciprocal tariff: How will India face it?
Second, India’s exports to these FTA partners have grown at a slower rate than its imports. With ASEAN, exports grew by 123.9 percent while imports rose by 175.7 percent.
With Japan, exports increased by 56.4 percent, while imports jumped by 98.5 percent. With South Korea, exports grew by 89.1 percent, while imports rose by 127.3 percent.
A key reason for this trade imbalance is India’s high MFN tariffs (regular import duties) compared to lower tariffs in partner countries. While FTAs reduce or remove tariffs, India’s exports remain less competitive due to these high baseline tariffs.
Negotiating New subjects
New trade agreements often include rules on the environment, labour, intellectual property, digital trade, and gender, pushed by developed countries. However, these issues are not directly related to trade and need careful negotations.
For example, adopting US or EU environmental standards could raise power and food costs, affecting economic activities. Higher minimum wages may increase product prices and hurt exports. Stricter medicine regulations beyond WTO rules could make medicines expensive. Allowing UK or EU firms into government procurement could harm small Indian businesses, while Indian firms face tough access to EU and UK markets.
Tighter sustainability standards in an FTA with the UK may prevent Indian apparel from getting tariff concessions. These are new trade barriers imposed by developed countries. India should set its own rules for labor, gender, environment, and digital trade before accepting them in FTAs.
Delay in completion of India-EU BTIA
As the negotiations haltingly continue since 2007, both sides face the challenge of balancing trade liberalization with domestic economic priorities. While India
seeks greater access for its services sector, short-term work visas, and data security recognition, the EU is pressing for deep tariff reductions, strong environmental and labor commitments, and greater investment protections.
With major unresolved issues across services, investment, government procurement, IPRs, sustainability, and green taxes, the India-EU FTA remains a complex and high-stakes negotiation. The outcome will determine whether this long-awaited trade pact will open new economic opportunities or remain stalled by regulatory and market access disputes.
A political push and pragmatic approach will be necessary to bridge these gaps and ensure that the India-EU BTIA becomes a cornerstone of their strategic economic partnership.
Finally, while FTAs play a key role in India’s trade policy, they account for only 15-17 percent of global trade, with most trade occurring under standard Most Favored Nation (MFN) tariffs. Experts often overestimate their impact, as many exports between FTA partners already face zero duties. For instance, only six percent of India’s exports to Singapore benefit from preferential FTA terms, while 70 percent of India’s exports to ASEAN enter duty-free under MFN rules. FTAs alone cannot drive export growth—India must complement them with broader economic reforms, competitive manufacturing, and a strong global trade strategy.
The writer is founder, Global Trade Research Initiative.