India’s Foreign Trade Agreements (FTAs): Approach and Challenges – Explained Pointwise

India has recently accelerated its pursuit of Free Trade Agreements (FTAs) as part of its strategy to deepen global economic integration, diversify export markets, and strengthen supply-chain resilience. Moving beyond its earlier cautious approach, India has concluded FTAs with countries such as United Arab Emirates and Australia, while actively negotiating agreements with the European Union, United Kingdom, and other partners. India now has 15 FTAs covering 27 countries, another 9 agreements with 42 countries are nearing completion – once finalized, India’s FTA partners will total 69 countries & could account for ~75% of the country’s exports.

What are Free Trade Agreements (FTAs)?

• FTAs are arrangements between two or more countries or trading blocs that agree to reduce or eliminate customs, tariff and non tariff barriers on substantial trade between them.
• FTAs, normally cover trade in goods (such as agricultural or industrial products) and trade in services (such as banking, construction, trading etc.).
• FTAs can also cover other areas such as:
  • Services trade: market access for banking, insurance, telecom, education, etc.
  • Investment protections: guarantees against arbitrary expropriation, dispute resolution mechanisms
  • Intellectual property: patent, copyright, and trademark standards
  • Government procurement: opening public contracts to foreign bidders
  • Non-tariff barriers: harmonising standards, certifications, and customs procedures
  • Labour and environment: increasingly common in newer agreements
• Types of Trade Agreements:
  

  Preferential Trade Agreement	Partial tariff reductions on select goods
  Free Trade Agreement	Broad elimination of tariffs/barriers between members
  Customs Union	FTA + common external tariff
  Common Market	Customs union + free movement of labour and capital
  Economic Union	Common market + harmonised economic policies

Key Features of FTAs:

1. Reduction of Tariffs: Tariffs are taxes imposed on imported goods. FTAs typically eliminate these taxes entirely (zero tariff) or reduce them significantly over a phased period.
2. Reduction of Non-Tariff Barriers: NTBs are obstacles like quotas (limits on quantity), burdensome licensing requirements, or unnecessary technical standards. FTAs aim to streamline or remove these.
3. Rules of Origin: To prevent goods from non-member countries from entering via the member with the lowest tariff, FTAs specify that only goods “substantially transformed” or with a high percentage of local content within the member countries qualify for the preferential tariff rate.
4. Trade in Services: Many modern FTAs cover services (e.g. banking, insurance, consulting, telecommunications), allowing companies to set up operations in partner countries under fair conditions.
5. Intellectual Property (IP) Protection: FTAs often set standards for protecting patents, copyrights, and trademarks to encourage innovation and creative industries.
6. Investment Provisions: These include protections for foreign investors, such as fair treatment, protection from expropriation, and mechanisms for dispute resolution (e.g. investor-state dispute settlement, or ISDS).
7. Dispute Settlement Mechanism: A formal process for resolving disagreements between member countries over the interpretation or implementation of the agreement.

Pros & Cons of FTAs:

What is the relationship between Multilateralism under the WTO Regime and the FTAs?

• Article 1 of GATT (General Agreement on Tariffs and Trade) deals with the Most Favoured Nation (MFN) principle of the WTO. It states that “any advantage, favour, privilege, or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties”. This means that if tariffs are lowered or eliminated on a particular good from the US, they must be lowered/eliminated for the same good from the EU or the UK or any other country.
• However, derogations (exemptions) from this MFN principle are permitted for forming FTAs under specific conditions of the WTO Agreements. Article XXIV of GATT for goods and Article V of GATS (General Agreement on Trade in Services) deal with these exemptions.
• The specific conditions (Article XXIV of the GATT) permitting FTAs are:
  1. FTA members shall not erect higher or more restrictive tariff/non-tariff barriers on trade with non-members than existed prior to the formation of the FTA;
  2. Elimination of tariffs and other trade restrictions be applied to “substantially all the trade between the constituent territories in products originating in such territories” i.e., if FTA is signed between two countries, the trade barriers should be eliminated for nearly all goods/
  3. Elimination of duties and other trade restrictions on trade within the FTA to be accomplished “within a reasonable length of time” meaning a period of no longer than 10 years.
• The ‘Enabling Clause’ allows developing countries to form preferential trading arrangements without adhering to the conditions under Article XXIV.

India’s Stance towards FTAs:

• India had signed its first Trade Agreement in 1975. It was a Preferential Trade Agreement known as Bangkok Agreement (renamed Asia-Pacific Trade Agreement in 2005).
• India signed the India-Sri Lanka FTA in 1998. This was the first time duties were eliminated on substantial tariff lines/goods.
• After the ‘Look East Policy’ was announced, several agreements were signed with East Asian countries. This includes Agreements with Japan, South Korea and the ASEAN.
• However, the outcomes of these FTAs were not favorable. While the trade with the FTA partner countries grew, the growth rate of imports was much greater than exports leading to rise in trade deficit.
• FTAs benefited India’s trade partners more than Indian firms. As a result, the Government became wary of signing more FTAs. India withdrew from RCEP in 2019. The fear was that the agreement included inadequate safeguards for Indian industries and that Indian market will be flooded with Chinese goods.

Source: Business Standard. India’s imports with FTA partner countries (South Korea, Japan, ASEAN) grew at a much faster rate than exports.

• But since 2021, India has broken a decade-long drought by signing and concluding a wave of major pacts for e.g. Treaties with the UAE (May 2022), Australia (December 2022), the EFTA bloc (Switzerland, Norway, Iceland, Liechtenstein in October 2025), and most recently, Oman (which officially went into effect on June 1, 2026). The Government is now seeking more investment, technology and potential markets for Indian goods in exchange for access to India’s domestic market to foreign goods.
• India concluded a massive historic FTA with the European Union (EU) in January 2026, finalized a framework for an interim trade agreement with the United States in February 2026, and is actively preparing to implement signed pacts with the UK and New Zealand. 

What advantages have FTAs brought to India?

1. Massive Surges in Export Volumes:
   • India-UAE CEPA: Following the 2022 India-UAE CEPA, bilateral trade crossed a historic $100 billion. Indian non-oil exports to the UAE surged by over 25% annually, driven by duty-free access for Indian gems, jewelry, textiles, and engineering goods.
   • India-Australia ECTA: Under the India-Australia ECTA, Australia granted immediate preferential access to Indian goods. By January 1, 2026, 100% of Indian exports entered Australia completely duty-free, causing India’s exports to Australia to more than double compared to pre-FTA levels.
2. Securing Cheaper Raw Materials for “Make in India”:
   • Steel & Power: Under the Australia pact, India eliminated tariffs on Australian coking coal and critical metallic ores. This provided an uninterrupted, cheaper supply of vital raw materials directly to Indian steel plants and infrastructure projects.
   • Textiles & Electronics: Deals with nations like the UAE and the EFTA bloc have reduced input costs on petrochemicals, polymers, and raw fabrics, allowing local MSMEs to manufacture finished goods at a lower cost base. 
3. Binding Commitments to Foreign Direct Investment (FDI): In India’s agreement with the European Free Trade Association (Switzerland, Norway, Iceland, and Liechtenstein), India secured a formal commitment to $100 billion in direct, long-term investments into India over 15 years. Crucially, this agreement excludes volatile stock-market portfolio flows and focuses purely on building domestic industrial capacity and factories. 
4. Employment Generation: Since India has strictly focused its tariff-cutting advantages on high-employment, labor-intensive sectors (like textiles, footwear, leather, and toys), the Ministry of Commerce estimates that the Australia and UAE pacts alone are on track to generate upwards of 1.2 million to 1.5 million new domestic jobs.
5. Advantage for Indian Service Sector:
   • Extended Visas: Treaties with Australia and the UK include dedicated clauses granting extended post-study work visas (up to four years) for Indian STEM graduates.
   • Mutual Recognition Arrangements (MRAs): India has begun signing MRAs where foreign countries legally recognize Indian professional qualifications. For example, recent pacts have streamlined cross-border recognition for Indian IT professionals, engineers, accountants, and even traditional AYUSH/Yoga experts, allowing them to practice abroad without repeating expensive local degrees. 
6. Strategic & Geopolitical Gains: Deepening ties with Gulf states (UAE, soon potentially Saudi Arabia and GCC) anchors energy security and diaspora remittance flows. Agreements with developed economies signal India’s openness, supporting its “Viksit Bharat” and supply-chain-diversification narrative. Thus, FTAs help India position itself as an alternative to China in global supply chains. Thus, beyond economics, FTAs have served India’s strategic interests.

What are the challenges associated with Free Trade Agreements (FTAs) for India?

1. Widening Trade Deficits: Since implementing older agreements, India’s trade deficit with ASEAN countries has ballooned by over 380%, with South Korea by roughly 268%, and with Japan by nearly 318%. This trend persists even in recently concluded deals. In fiscal year 2025, India exported $48.6 billion to its newer partners (UAE, Australia, Mauritius, and EFTA) but imported nearly $100 billion from them, triggering a trade deficit exceeding $50 billion.
2. Tariff Asymmetry: India’s FTAs often yield asymmetric tariff benefits because many partner countries already have highly liberalized trade regimes. Countries such as Singapore, Japan, Australia, and the UAE maintain very low import tariffs, whereas India’s trade-weighted tariff averages around 12.6%. As a result, when tariffs are eliminated under an FTA, foreign exporters gain a significant price advantage in the Indian market. In contrast, Indian exporters receive limited additional market access benefits since partner markets were already largely open before the agreement.
3. Low “Utilization Rates”: Getting a great tariff discount on paper is meaningless if businesses do not actually use it. India’s FTA utilization rate stands at a poor 20% to 30% for eligible exports. In stark contrast, developed economies sit at 70% to 80% utilization, and competitors like Vietnam and Mexico operate at 40% to 50%.
4. Inverted Duty Structure: FTAs have aggravated India’s inverted duty structure, where duties on raw materials exceed those on finished products. Domestic manufacturers may pay 7.5–10% import duties on inputs such as steel and aluminum, while fully assembled machinery and engineering goods from FTA partner countries often enter duty-free. This creates a cost disadvantage for Indian producers, raising domestic production costs and making it difficult for local industries to compete with cheaper imported finished goods in the domestic market.
5. Non-Tariff Barriers: Indian agricultural and pharmaceutical exports are frequently rejected or delayed by European and American authorities citing sanitary, phytosanitary, and rigorous packaging measures. Furthermore, newer-generation FTAs (like the India-EU FTA) introduce new NTBs for e.g. EU’s Carbon Border Adjustment Mechanism (CBAM) effectively imposes a carbon tax on imports like steel and aluminum. This adds significant costs for Indian manufacturers who may not yet have green technologies.
6. Services Liberalisation Asymmetry: India’s core comparative advantage lies in services – IT, software, healthcare, education, professional services. Yet most FTAs India has signed are heavily weighted toward goods, not services. Partner countries are reluctant to liberalise Mode 4 (movement of natural persons) – the most relevant mode for Indian services exports. Visa restrictions, work permit quotas, and mutual recognition of qualifications remain barriers even within FTA frameworks.

What should be India’s approach regarding the FTAs?

1. Create a Dedicated “FTA Impact Monitoring Authority”: India needs an independent monitoring authority tasked with:
   • Real-time tracking of import surges to trigger early warning “safeguard duties” before foreign goods overwhelm local markets.
   • Aisling performance audits on a sector-by-sector basis to see exactly which industries are winning or losing under active FTAs.
   • Accountability mechanisms for trade negotiators to ensure the concessions they win translate into actual shipments. 
2. Eliminate the “Inverted Duty Structure”: The government must proactively restructure its domestic customs duties. Before a new FTA kicks in, standard MFN (Most-Favored-Nation) tariffs on critical components, raw minerals, and chemicals used by local factories must be reduced below the tariff levels of the fully assembled products arriving from trade partners.
3. Launch an “FTA Utilization” Outreach Program: Set up dedicated trade helpdesks across industrial hubs (like Surat for textiles or Tiruppur for garments) to educate small-scale entrepreneurs on how to price and package their goods to clear foreign FTA criteria.
4. Fight Non-Tariff Barriers (NTBs) via Mutual Recognition: India’s negotiators must prioritize Mutual Recognition Agreements (MRAs) and conformity assessments. If an Indian regulator (like the FSSAI for food or the CDSCO for pharma) tests and certifies a product inside India, partner nations must be legally bound to accept that certification without demanding repeating, redundant local testing at European or American ports.
5. Building Digital Capabilities: The Government must work on building its digital capabilities and infrastructure in key export sectors through a ‘Digitally Informed Foreign Trade Policy’, with a focus on enhancing India’s trade competitiveness. This can be achieved by developing digital infrastructure for trade, building digital skills in trade-able sectors, increasing the share of technology content in exports, and leveraging advanced technologies (Big Data Analytics, IoT, and Blockchain) for evidence-based and informed trade policy decisions.

Conclusion:

India’s approach to should involve learning from past imbalances, targeting high-opportunity partners, innovating with investment-linked and digitally-enabled agreements, and building a robust domestic ecosystem to enforce and benefit from them. The goal is to transform FTAs from static documents into dynamic tools for economic resilience and growth.