India is rapidly expanding its Free Trade Agreement (FTA) to open up new markets and boosting exports. In more than 350 feet of effective globally, these agreements help reduce trade barriers such as tariffs, thereby improving trade efficiency.
Over the past five years, India has signed FTAs ​​with Mauritius, the UAE, Australia and EFTA countries (Switzerland, Norway, Iceland and Liechtenstein), while negotiating with the United Kingdom and Oman.
But while the FTAs ​​offer opportunities, their effectiveness depends on strategic implementation, addressing trade imbalances, and new regulatory challenges posed by developing developed economies.
Overall, India now has 14 trade agreements, including 25 countries including ASEAN, Japan and South Korea. It is also in talks with more than 50 more countries and has reached six smaller trade agreements with 26 countries.
India has also joined the U.S.-led Indo-Pacific Economic Framework (IPEF), which focuses on regulatory cooperation but does not include tariff cuts such as traditional FTAs.
Soon, India will enjoy FTA in all major economies outside China. However, India and China do have limited tariff preferences for about 25% of the tariff line under the Asia-Pacific Trade Agreement.
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Changes in India’s FTA strategy
India’s current FTA strategy is different from the past: two key ways:
Focus shift: Earlier, India had given priority to ftas in eastern countries such as ASEAN, Japan, South Korea and Australia. Now, after the major agreements were completed in the East, India will focus on FTAs ​​with Western countries such as the UK, the EU, the US, Switzerland, Norway and Canada (although talks with Canada have been put on hold).
Including new areas: Unlike early FTAs ​​that focused primarily on trade in goods and services, agreements with developed countries now include non-transactional areas such as sustainable development, digital trade, intellectual property, IPR), labor, gender, MSMES, government procurement and competition.
How is FTA performing?
From fiscal 2019 to fiscal 2024, India’s exports to its 21-foot partners increased by 14.48%, from $107.2 million to $122.72 billion, while imports increased from $136.2 billion to $17.97%, to $136.2 million to $18.72 billion. These partners include ASEAN, South Korea, Japan, the UAE, Australia, Mauritius and six Safta countries.
A closer look at the FTAs ​​of India and ASEAN, South Korea and Japan show two key trends: First, India’s trade deficit with these partners is getting much faster. From before the FTA (2007-09) to recent years (2020-22), ASEAN’s trade deficit soared by 302.9%, South Korea was 164.1%, Japan’s trade deficit was 138.2%, and India’s global trade deficit increased by 81.2%. This trend continues in 2023.
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Secondly, India’s exports to these FTA partners are growing slowly. With ASEAN exports, exports grew by 123.9%, while imports increased by 175.7%.
With Japan’s exports, exports grew by 56.4%, while imports rose by 98.5%. With South Korea’s exports, exports grew by 89.1%, while imports rose by 127.3%.
The key reason for trade imbalance is that India’s high MFN tariffs (regular import tariffs) are compared with lower tariffs in partner countries. Despite the FTA lowering or removing tariffs, India’s exports remain lower due to these high baseline tariffs.
New theme of negotiation
New trade agreements often include rules on the environment, labour, intellectual property, digital trade and gender promoted by developed countries. However, these issues have no direct relationship with trade and require careful negotiation.
For example, adopting our or EU environmental standards may increase electricity and food costs, which can affect economic activity. Higher minimum wages may raise product prices and harm exports. Stricter medical regulations that go beyond WTO rules could make drugs expensive. Allowing British or EU companies to enter government procurement could hurt Indian small businesses, while Indian companies face tough access to EU and UK markets.
The UK FTA’s stricter sustainability standards could prevent Indian clothing from getting tariff benefits. These are new trade barriers imposed by developed countries. India should set its own rules for labor, gender, environment and digital trade before accepting the FTA.
Delayed completion of the EU BTIA in India
As negotiations continue to cease since 2007, both sides face the challenge of balancing trade liberalization with domestic economic priorities. And India
Looking for larger services, short-term work visas, and data security recognition, the EU is urging a reduction in tariffs, a strong environmental and labor commitment and greater investment protection.
Due to the significant unresolved issues of cross-services, investment, government procurement, intellectual property, sustainability and green taxes, the India-EU FTA remains a complex and high-risk negotiation. The results will determine whether the long-awaited trade agreement will open up new economic opportunities or stagnate due to regulatory and market access disputes.
To bridge these gaps, a politically driven and pragmatic approach must be taken and ensured that the India-EU BTIA is the cornerstone of its strategic economic partnership.
Finally, although FTAs ​​play a key role in India’s trade policy, they account for only 15-17% of global trade, with most trade occurring under standard most popular countries (MFN) tariffs. Experts often overestimate its impact, as many exports between FTA partners already face zero responsibilities. For example, only 6% of India’s exports to Singapore benefit from the preferred FTA clause, while 70% of India’s exports to ASEAN enter tax exemption under the MFN rules. The FTA alone cannot drive export growth – India must complement them with broader economic reforms, competitive manufacturing and a strong global trade strategy.
The author is the founder of the Global Trade Research Program.
