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.