January 1, 2026

Current Affairs

India’s Increasing Push for Free Trade Agreements

Context: Amid slowing global growth, supply-chain disruptions, and rising geopolitical uncertainty, India is actively signing Free Trade Agreements (FTAs) as part of a strategic shift to secure markets, investments, and technology in a volatile global order.

Free Trade Agreement (FTA)

An FTA is a binding trade pact between countries or economic blocs that reduces or eliminates tariffs, quotas, and other trade barriers to promote cross-border trade in goods and services.

Why India Is Pushing FTAs

1. Market Access for Exports

FTAs provide preferential access to overseas markets, benefiting labour-intensive sectors.
Example: The India–UAE CEPA offers duty-free access for about 90% of Indian exports, leading to a 12% export rise in the first year.

2. Investment Gains

Stable trade rules under FTAs attract long-term foreign investment.
Example: The India–EFTA Trade and Economic Partnership Agreement (TEPA) commits $100 billion of investment over 15 years.

3. Improved Competitiveness

Lower tariffs on inputs help India integrate into global value chains.
Example: Under the India–ASEAN FTA, Indian textile exports to ASEAN grew by 15%.

4. Expansion of Services Trade

Modern FTAs increasingly cover services and mobility.
Example: The proposed India–UK FTA seeks improved market access for Indian professionals in IT and healthcare.

5. Geopolitical Alignment

FTAs act as strategic stabilisers by strengthening partnerships with key regions. Agreements with QUAD partners, the EU, and Indo-Pacific countries reinforce India’s strategic position.

6. Technology Access

Trade agreements facilitate access to advanced technologies.
Example: The India–Australia ECTA improves access to renewable energy and critical mineral technologies.

Key Concerns in India’s FTA Strategy

Trade Imbalances: Imports under pacts like AITIGA have outpaced exports.
Low Utilisation: Only about 25% of exporters use FTA benefits due to complex rules and paperwork.
Rules of Origin (RoO) Misuse: Risk of third-country goods entering India via FTA partners.
Non-Tariff Barriers (NTBs): Strict standards in developed markets limit real market access.
Domestic Vulnerability: Dairy and farm sectors fear competition from subsidised producers abroad.
Sustainability Pressures: Measures like the EU’s CBAM add carbon-related costs to exports.
Overdependence Risk: Excessive bilateralism may weaken India’s multilateral bargaining power.

Way Forward

Simplify & Digitise RoO to cut compliance costs and prevent misuse.
Support MSMEs through export facilitation and awareness programmes.
Align PLI Schemes with FTA objectives to boost high-value manufacturing.
Improve Trade Logistics via ports, ICDs, and customs digitalisation.
Sectoral Strategy: Push strengths (services, textiles, gems) while protecting sensitive sectors.
Sustainability Readiness: Prepare industry for NTBs and carbon regulations.
Regular FTA Reviews: Modernise older FTAs like AITIGA to correct imbalances.

India’s Special Economic Zone (SEZ) Slowdown

Context: Recent Commerce Ministry data reveal that 466 Special Economic Zone (SEZ) units have shut down over the last five years across seven SEZs, signalling structural stress in India’s flagship export-promotion framework. Closures accelerated after the COVID-19 shock, peaking in FY25 (100 units) and FY22 (113 units).

About Special Economic Zones (SEZs):

India announced its SEZ policy in 2000 under the Foreign Trade Policy, later institutionalised through the SEZ Act, 2005 and SEZ Rules (2006). SEZs were envisaged as duty-free enclaves to promote exports, attract domestic and foreign investment, generate employment, and create world-class infrastructure. Section 18 of the Act also allows International Financial Services Centres (IFSCs) within SEZs, a provision operationalised through GIFT City.

Current Status of the SEZ Sector:

Despite rising exports and investments, the sector shows signs of stagnation. Employment declined marginally from 31.94 lakh to 31.77 lakh (FY25), while exports doubled from ₹7.59 lakh crore (FY21) to ₹14.63 lakh crore (FY25) and investments rose from ₹6.17 lakh crore to ₹7.82 lakh crore. However, sectoral stress is evident: gems and jewellery units fell from ~500 (pre-2019) to ~360 by FY22, reflecting vulnerability to global demand shocks and policy rigidities.

Consequences of the SEZ Slowdown:

Export Headwinds: U.S. tariffs and compliance rigidity have slowed SEZ export growth to below 4% YoY (FY24–25).
Idle Capacity: 25–30% capacity underutilisation during seasonal demand dips undermines efficiency.
Competitiveness Loss: Competing economies like Vietnam attract three times more FDI due to flexible domestic-linkage rules.
Fiscal Impact: Over 35 units sought de-notification since 2023, implying an estimated ₹2,800 crore annual revenue shortfall (customs and income tax).
Employment Risks: The gems and jewellery SEZs employ about 1.05 lakh artisans; declining U.S. orders led to 12,000+ job losses in FY25.

Way Forward

India must recalibrate SEZs to a post-pandemic, geopolitically fragmented trade environment.

Policy Flexibility: Allow controlled domestic subcontracting (job-work) with fair duty adjustment, akin to China’s dual-use SEZ model.
Global Branding: Reposition Indian SEZs via coordinated outreach with Invest India.
Investment Protection: Negotiate modern Bilateral Investment Treaties (BITs) aligned with global best practices.
Innovation Push: Launch an SEZ Innovation & Skill Mission offering tax incentives for R&D, design, and upskilling.
Digital Integration: Seamlessly link SEZs with the National Single-Window System to cut approval delays.

Conclusion:

The SEZ slowdown reflects not failure, but policy inertia amid changing global trade dynamics. Targeted reforms can restore SEZs as engines of export competitiveness, jobs, and investment.