India’s FTAs Spree: 8 Deals in 6 years. Historic or Hype?
Author: Surajkumar Lalbabu Jha
Div: B, Roll no: 71
1.0. Introduction:
India has successfully signed in total 8 Free Trade Agreements (FTAs) in the last 5 years from 2021. These deals were signed in order to boost domestic manufacturing and export growth. But some structural flaws in trade execution have rendered these deals ineffective for Indian businesses. Let’s discuss what all problem arise which lowered the exports of India even after these massive wins.
2.0. Objective:
To Analyse India’s Trade Policy Shift (2021–2026) and its impact on MSMEs.
3.0. Literature Review:
To know what the exact reasons for this situation where, researcher has reviewed around 10 existing research papers on the Trade deals.
3.1. Structural Shifts Needed for FTA Success (IIMA, 2023)
The Indian Approach to successful FTAs require three unyielding structural changes. First, the country’s trade facilitation policies need to be changed linked to global trade agreement negotiations. The PLI scheme is a good beginning, but it needs to be combined with reduced tariff barriers in future FTAs to be truly effective. India needs to overcome its own hurdles such as logistics and suffocating inverted duty structures. Rule Of Origin (ROO) needs to be radically optimized to safeguard home industries without choking the supply chain. Second, India needs to stop signing FTAs that ignore its strongest comparative advantage: Service Sector. In past agreements, such as the Korean CEPA, the country incurred trade deficit because these agreements did not remove non-tariff barriers. Existing trade agreements which are poorly negotiated need to be re-opened and re-negotiated to rectify this historical mistake. Third, attempting to match wins with low-skilled, low-tech manufacturing against lower cost Asian-competition is a recipe for disaster. India’s survival depends on shifting immediately to sophisticated, high value, and complex manufactured goods. Capital must be directed toward the 13 high-potential sectors, including complex chemicals and electrical apparatuses. India must weaponize its current IT dominance to capture frontier markets like artificial intelligence and robotics (IIMA, 2023).
3.2. Import Surges & Sectoral Imbalances
Suriaganth & Abdullah, (2024) revealed that while FTAs have played a significant role in expanding India’s trade volume, their impact on overall economic growth and sectoral development has been mixed. Through a comparative analysis, it is evident that FTAs with major trading partners have led to increased imports, yet export growth has often lagged, resulting in persistent trade deficits with certain regions. This trade imbalance raises concerns regarding the long-term benefits of FTAs for India’s economic stability and industrial competitiveness. One of the main findings highlights the uneven benefits across sectors. While industries like IT and services have benefited from liberalized trade policies, traditional sectors such as agriculture and manufacturing have faced competitive pressures from foreign goods, affecting domestic production and employment. Additionally, limited FTA utilization among small and medium-sized enterprises (SMEs) and the presence of non-tariff barriers in partner countries have constrained India’s export growth, reducing the agreements’ overall effectiveness. Suriaganth & Abdullah, (2024) also identified significant barriers in the implementation of FTAs, including regulatory challenges and limited. Awareness among stakeholders. Addressing these challenges will be essential to maximizing the potential of FTAs. Effective policies aimed at reducing non-tariff barriers, enhancing sectoral competitiveness, and improving FTA awareness among businesses could substantially increase India’s export capacity and economic gains from these agreements.
3.3. High Compliance Costs & Rules of Origin Loopholes
Saraswat et al., (2018) stated in there research that before getting into any multilateral trade deal India should firstly, review and assess its existing FTAs in terms of benefits to various stakeholders like industry and consumers, trade complementarities and changing trade patterns in the past decade. Second, negotiating bilateral FTAs with countries where trade complementarities and margin of preference is high may benefit India in the long run. Third, higher compliance costs nullify the benefits of margin of preference, thus reducing compliance cost and administrative delays is extremely critical to increase utilisation rate of FTAs. Fourth, proper safety and quality standards should be set to avoid dumping of lower quality hazardous goods into the Indian market. Fifth, circumvention of rules of origin should be strictly dealt with by the authorities. In case of India- Sri Lanka FTA, Sri Lanka had started exporting copper to India by under invoicing of imported scrap to in order to show higher value addition for qualifying for preferential rates under the FTA. Thus, Rules of Origin (ROO) norms can easily be circumvented by simple accounting manipulation to flood Indian markets. The over-arching conclusion of this report is that FTAs have to be signed keeping two things in mind, mutually reciprocal terms and focusing on products and services with maximum export potential.
3.4. The Gravity Model: Variables of Trade Balance
Journal of Informatics Education and Research, (2025) concludes that in the present world of integration and globalisation, nature of economies of partnering countries do have an effect on trade of home country. In case of India, FTAs, distances, GDPs and other such factors, all have a role to play in its trade balance with respective countries. India must strategically enter FTAs based on such positive coefficient variables, to improve its trade.
3.5. Rising Import Penetration from Asian Partners
International Journal of Novel Research and Development (IJNRD), (2023) evaluates the performance of India –ASEAN CECA, India -South Korea CEPA and India -Japan CEPA after a decade. It analyses the impact of these trade agreements on India’s trade performance. Trade between India with ASEAN and South Korea had increased significantly. The trade balance ratio in relation to total trade has worsened overall, with the exception of for Myanmar, Laos, Philippines, and Cambodia. FTA is have increased the import penetration of ASEAN, Japan and South Korea. India is not able to enjoy the market preference as compared to the FTA partners. India have experienced a rise in the imports of intermediate goods between pre-FTA and Post FTA phase from Japan, South Korea, and major ASEAN countries. India has experienced a revealed comparative advantage with ASEAN countries in consumer goods, intermediate goods, and raw material category. With South Korea, India has a revealed comparative advantage in consumer goods and in intermediate goods only and in other categories India has a revealed comparative disadvantage. India has a revealed comparative advantage with Japan in Intermediate goods, consumer goods, and raw materials. In the case of raw material, India has a comparative advantage in the pre-FTA phase, but it turns to revealed comparative disadvantage in the post FTA phase. India has a comparative disadvantage in the capital goods with ASEAN, Japan, and South Korea.
3.6. Trade Flow Potential with the US
Fukase, E., & Martin, W. (2016) in their research stated that there is no simple answer to the question, “would India benefit from a trade agreement with the U.S.?” Both the CAGR analysis and the Gravity model estimation suggest that trade flows are likely to increase due to a trade agreement. From the CAGR analysis researcher found that trade between India and her trade agreement partners outperforms that of the control group. Notably, this is true for Japan, the only developed country with which India has a trade agreement. This case shows that an economic partnership between India and the U.S. may prove mutually beneficial, although we should be cautious about drawing conclusions from only one case. The Gravity model results also show higher levels of trade following an agreement. Unlike the CAGR analysis, these results include the U.S. as part of the control group. This is important because India’s CAGR analysis shows that trade agreement partners perform poorly compared with the U.S. Once India adds other determinants of trade in the Gravity model, it found that trade agreement partners outperform the control group (which includes the U.S.).
3.7. UAE CEPA: Potential vs. Gold Tariff Challenges
Journal of Economic Cooperation and Development, (2025) indicates that the India-UAE CEPA has significant trade potential due to strong complementarity, with projected bilateral trade reaching US$113 billion in five years. Despite challenges like tariff concessions on gold and silver, which could affect CEPA’s efficiency, renegotiation of key terms could mitigate these issues. The agreement’s success may lead India to reassess its future negotiation strategies and existing regional trade agreements to enhance their effectiveness.
3.8. Persistent Deficits & High Trade Costs
PHD Chamber of Commerce and Industry (PHDCCI). (2018). in their research paper titled “India’s Free Trade Agreements: Dynamics and Diagnostics of Trade Prospects” stated that India ranks 2nd in Asia for the number of Free Trade Agreements (FTAs) signed, with 28 FTAs, just behind Singapore’s 33. Key trading partners in these agreements include the EU, Canada, ASEAN, Korea, GCC, Japan, China, and Australia. FTAs are seen as a significant tool for India to promote multilateral trade liberalization and create economic linkages that lead to business opportunities. They can support India’s development as a manufacturing hub and enhance trade through increased imports from other nations while addressing deeper integration issues between countries. India faces a trade deficit of USD 51.9 billion with APTA and USD 11.8 billion with ASEAN, while achieving a surplus of USD 14.3 billion with SAFTA. The foreign trade policy maintains continuity through timely adjustments, leading to a reduced merchandize trade deficit of USD 46.42 billion for 2016-17, down from USD 54.28 billion in 2015-16. Trade costs with SAARC members are significantly higher compared to those with countries like Saudi Arabia, Germany, UK, and the US, compounded by rerouting through Dubai and Singapore. Despite seeking trade agreements, India lacks arrangements with major partners such as the U.S., U.K., and Australia.
3.9. “Behind the Border” Constraints & the China Deficit
Global Economy Journal, stated that India and China, as the largest and fastest-growing economies in Asia, face a significant trade deficit favouring China. Policymakers are examining whether this deficit can be addressed through trade policies like a free trade arrangement. Dreze and Sen (2013) have suggested that India’s growth potential has been underutilized, primarily due to a failure to learn from the successful models of East and Southeast Asia. A critical lesson is the need for efficient infrastructure and institutions that foster growth. India’s exporting environment suffers from ‘behind the border’ constraints, including poor infrastructure and restrictive trade policies. If a free trade agreement (FTA) between the two countries is executed without addressing these constraints, it may exacerbate the trade deficit, as Indian tariffs are high and Chinese exporters would benefit more from duty-free access to India than Indian exporters would from access to China, where tariffs are lower.
3.10. Trade Creation vs. Trade Diversion (India-US)
Fukase, E., & Martin, W. (2016) analysed the economic implications of a potential Free Trade Agreement (FTA) between India and the US using an applied general equilibrium model, considering hypothetical scenarios of 100% and 50% average effective tariff cuts for goods and services. It concludes that an India-US FTA could increase real incomes in both countries. Gains from trade creation may be offset by trade diversion, but both nations would benefit from better market access. The US would see improvements in terms of trade for goods and services due to India’s high initial tariffs, while India would expand its exports and output, especially in textiles and apparel, aided by the efficiency of services imported from the US.
4.0. Conclusion
The fundamental issue is that these free trade agreements (FTAs) disproportionately promote import penetration over export growth, which leads to bilateral trade deficits. Additionally, partner countries like the EU, UK, and Australia impose severe Non-Tariff Barriers (NTBs) like carbon taxes, ESG standards, and strict sanitary regulations, and the low utilisation rate among Indian MSMEs (caused by complicated Rules of Origin compliance) neglects expected export gains. Therefore, these FTAs run the risk of serving as import subsidies that stifle domestic manufacturing rather than serving as catalysts for global export dominance.
5.0. References
Dreze, J., & Sen, A. (2013). An Uncertain Glory: India and its Contradictions. Princeton University Press.
Fukase, E., & Martin, W. (2016). The Economic Potential of an India-US Free Trade Agreement. Journal of Economic Integration, 31(4), 774-816. http://dx.doi.org/10.11130/jei.2016.31.4.774
Global Economy Journal. Will Free Trade Agreement Between India and China Reduce India’s Trade Deficit? A Stochastic Frontier Gravity Approach.
Indian Institute of Management Ahmedabad (IIMA). (2023). Free Trade Agreements (FTAs) by India: Review and Implications for Future. MCFME.
International Journal of Novel Research and Development (IJNRD). (2023). India’s Trade Agreements with ASEAN, Japan and South Korea: An Analysis.
Journal of Economic Cooperation and Development. (2025). Trade Potential of India UAE Comprehensive Economic Partnership Agreement (CEPA).
Journal of Informatics Education and Research. (2025). Impact of India’s FTAs and FTA Partners on India’s Trade: A Gravity Model Approach. Vol 5(1), 911-913.
PHD Chamber of Commerce and Industry (PHDCCI). (2018). India’s Free Trade Agreements: Dynamics and Diagnostics of Trade Prospects.
Saraswat, V. K., Priya, P., & Ghosh, A. (2018). A Note on Free Trade Agreements and Their Costs. NITI Aayog, Government of India.
Suriaganth, S., & Abdullah, A. M. (2024). Assessing the Effectiveness of India’s Free Trade Agreements (FTAs): A Comparative Analysis. South Eastern European Journal of Public Health, 1125–1130. https://doi.org/10.70135/seejph.vi.2003
