India’s Strategic Turn to Free Trade Agreements | 17 Dec 2025

Source:IE 

Why in News?

India is currently accelerating its pursuit of Free Trade Agreements (FTAs) with a wide range of countries like New Zealand, Russia and Oman, even though past FTAs delivered modest trade gains.  

• This shows a shift in focus, with FTAs now used more to secure strategic partnerships and geopolitical interests than to boost trade alone.

What are the Reasons Behind India’s Renewed Emphasis on FTAs?

• Strategic Realignment in Global Geopolitics: The global shift from a unipolar to a multipolar order (e.g., US-China rivalry, weakening of the World Trade Organization (WTO)) has made bilateral and regional FTAs a tool of strategic engagement. 
  • India is leveraging FTAs to strengthen political alignments, especially in the Indo-Pacific, West Asia, and Africa. 
  • In a volatile world order, FTAs act as “political safety nets”, ensuring closer bilateral ties and strategic insurance (e.g., India-Australia Economic Cooperation and Trade Agreement (ECTA), India-UAE Comprehensive Economic Partnership Agreement (CEPA)). 
• Decline of Multilateralism: The stagnation of WTO negotiations (Doha Round) and protectionist trends globally have reduced the effectiveness of multilateral trade forums. 
  • FTAs provide a platform to pursue WTO-plus commitments, especially in areas like services, digital trade, and investment. 
  • The India-EFTA TEPA exemplifies this shift binding commitment of USD 100 billion in FDI over 15 years. 
• Diversification of Economic and Trade Partners: FTAs help reduce overdependence on a few markets (e.g., US, EU, China). 
  • They enable India to access new markets, diversify supply chains, and secure critical resources (e.g., energy, minerals). 
  • Also, FTAs are no longer just about market access, they are strategic tools to operationalize the "China Plus One" policy and secure upstream supply chains. 
• Unlocking Untapped Potential in Services and Investment: India has a comparative advantage in services (IT, healthcare, education), but past FTAs underutilised this potential. 
  • New FTAs (e.g., UAE-India CEPA) focus more on services, fintech, and investment flows. 
• Strengthening Domestic Capabilities and Value Chain: FTAs are aligned with initiatives like ‘Make in India’ and Production Linked Incentive schemes, aiming to integrate Indian manufacturing into global value chains. Strategic FTAs can help attract Foreign Direct Investment (FDI) and technology transfers. 
• Correcting Past Imbalances: Learning from asymmetric gains in earlier FTAs (e.g., ASEAN), India now seeks better-balanced, services-focused agreements, ensuring domestic industry interests are protected. 
  • For example, India’s export share to ASEAN increased only marginally from 10.2% to 10.8%, while it declined from 2.1% to 1.9% with Japan, and from 1.9% to 1.4% with South Korea, based on five-year averages before and after the respective FTAs. 
  • This trend suggests that previous FTAs have mostly codified existing trade flows rather than generating significant new trade.

What are the Concerns Accompany India’s Expanding Network of in Free Trade Agreements?

• Trade Deficits and Asymmetric Gains: Many of India’s earlier FTAs have not led to a strong export boost. Imports from partner countries often rose faster than exports, widening trade deficits. 
  • Example: Between FY 2009 and FY 2023, imports from ASEAN to India grew by 234.4% while exports from India rose only by 130.4% despite FTA.  
    • Indian exporters often fail to gain reciprocal market access. 
• Non-Tariff Barriers (NTBs): Developed economies impose stringent standards (e.g., IPR, sanitary measures) that dilute tariff benefits. India–EU FTA has stalled over data localisation and IPR issues. 
  • Furthermore, India's FTA utilization rate remains low at just 25%, compared to 70–80% in developed countries. 
  • FTAs with the EU and the UK involve stringent environmental and labour compliance requirements, which India is cautious about adopting and risk India’s exclusion from emerging “green” trade regimes. 
• Harm to Domestic Sectors: MSMEs, farmers, and labour-intensive sectors struggle to compete with cheaper imports. Tariff cuts can hurt sectors that are not yet globally competitive. 
  • FTAs often commit to zero-duty imports on finished goods while domestic tariffs on raw materials remain high (to protect upstream industries), creating a structural disadvantage for Indian manufacturers. 
    • This "Inverted Duty Structure" incentivizes trading (importing finished goods) over manufacturing, directly contradicting the Atmanirbhar Bharat (Make in India) vision. 
    • Example: Indian rubber farmers hurt by cheaper imports under the ASEAN FTA. 
  • Opening markets in dairy, plantation crops, or cereals raises concerns over farmer livelihoods. 
• Risk of Import Surges via Third Countries: Goods from non-FTA countries may enter India through partner nations by exploiting rules of origin. This weakens domestic manufacturing and undermines the spirit of FTAs.

What Should be India’s Policy Approach to Enhance the Effectiveness of Its FTA Strategy?

• Strengthen Domestic Competitiveness: Invest in R&D, infrastructure, skill development, and MSME support to prepare industries for global competition. 
• Focus on WTO-Plus Areas: Prioritise sectors like digital trade, green energy, and services, especially in future FTAs with developed economies. 
• Incorporate Balanced Safeguards: Ensure strong Rules of Origin, safeguard duties, and anti-dumping provisions to prevent misuse by third countries. 
• Institutional Reforms and Inter-Ministerial Coordination: Enhance cooperation between the MEA, Commerce Ministry, and NITI Aayog to align strategic and economic interests. 
• Improve Dispute Resolution Frameworks: Include binding timelines and independent panels in FTAs for swift resolution of trade disputes. 
• Monitor and Review Existing FTAs: Establish mechanisms for periodic impact assessment, public consultation, and course correction. 
• Promote Inclusive and Sustainable Trade: Integrate labour and environmental safeguards without undermining domestic flexibility.

Conclusion 

India’s renewed emphasis on FTAs is less about expanding trade volumes and more about navigating a fragmented global order. As multilateralism weakens and geopolitics dominates economics, FTAs have evolved into tools of strategic alignment, diplomatic insurance, and supply-chain security. In this emerging order, strategic logic—rather than pure economic efficiency—will increasingly drive India’s trade policy.