India’s Evolving Free Trade Strategy

• 25 Dec 2025

This editorial is based on “A good template: On India’s FTA with New Zealand” which was published in The Hindu on 24/12/2025. The article highlights India’s evolving and more calibrated approach to free trade agreements, balancing strategic openness with protection of sensitive domestic sectors. It underscores that the real test lies not in signing FTAs, but in effective implementation—removing non-tariff barriers, leveraging mobility provisions, and ensuring such agreements translate into broad-based economic gains. 

For Prelims:FTAs,India-UK FTA,India-EFTA,ASEAN,India-UAE CEPA,India Australia ECTA 

For Mains:India’s evolving strategy on FTA,Key issues in FTA and and measures to utilise FTAs effectively.

As global trade fragments and protectionism resurges, India’s evolving approach to free trade agreements reflects a shift from headline-driven deals to calibrated, interest-based partnerships. Recent Free Trade Agreements (FTAs) with countries such as the New Zealand signal a strategy that combines selective market opening with protection of vulnerable sectors. By focusing on services, mobility, investment, and supply-chain resilience, India is aligning trade policy with its comparative advantages. If effectively implemented, this pragmatic FTA approach can strengthen India’s global integration while supporting inclusive and sustainable growth. 

What are Free Trade Agreements? 

• About: FTAs are formal treaties between two or more countries to promote trade and economic cooperation by reducing tariffs, easing non-tariff barriers, and establishing common rules for trade in goods, services, investment, intellectual property, and dispute settlement. 
  • FTAs aim to ensure predictable market access, boost competitiveness, and integrate economies into global value chains. At the same time, they allow countries to safeguard sensitive domestic sectors through negotiated protections. 
  • For example, India- UK FTA grants zero-duty access for 99% of Indian exports to the United Kingdom.  
• India's Recent FTAs: India is moving away from a few major partners to a global network to insulate itself from global tariff wars and supply chain shocks. 
  • Recently India has aggressively expanded its trade network, concluding landmark deals with the UK (CETA), Oman (CEPA), and most recently New Zealand (FTA).

Key Types of Trade Agreements

• Free Trade Agreement (FTA): Member countries eliminate or reduce tariffs and trade barriers on goods (and sometimes services) among themselves, while retaining independent trade policies with non-members (e.g., India–ASEAN FTA). 
• Comprehensive Economic Partnership Agreement (CEPA): A deeper form of FTA that covers not only goods but also services, investment, intellectual property, mobility, and regulatory cooperation (e.g., India–UAE CEPA). 
• Comprehensive Economic Cooperation Agreement (CECA): Similar to CEPA but relatively less extensive in coverage and commitments, often seen as a stepping stone to deeper integration (e.g., India–Singapore CECA). 
• Preferential Trade Agreement (PTA): Countries offer reduced tariffs on selected goods rather than full tariff elimination, making it a limited and partial trade arrangement. 
• Customs Union: Members eliminate internal tariffs and adopt a common external tariff for non-members, requiring deeper coordination. (e.g,  MERCOUSER) 
• Economic Union: The most integrated form, involving free movement of goods, services, capital, and labour along with coordinated economic policies (e.g., Eurasian Economic Union ).

Why Is India Pushing for Free Trade Agreements (FTAs)? 

• Expanding Market Access: FTAs help Indian exporters gain preferential access to large and fast-growing markets by reducing tariffs and non-tariff barriers, especially for sectors like pharmaceuticals, textiles, engineering goods, and services. 
  • For example, engineering goods exports to EFTA rose by 18% to $315 million in FY 2024–25 that is credited to the India–European Free Trade Association (EFTA) Trade and Economic Partnership Agreement (TEPA). 
• Boosting Exports and Correcting Trade Imbalances: With exports crucial for sustaining high growth, FTAs are seen as tools to diversify export destinations and improve India’s trade competitiveness amid slowing global demand. 
  • Since the signing of India-UAE CEPA, bilateral merchandise trade has nearly doubled from US$ 43.3 billion in FY 2020-21 to US$ 83.7 billion in 2023-24. 
• Leveraging India’s Strength in Services and Mobility: New-generation FTAs increasingly include provisions for services trade, professional mobility, and mutual recognition of qualifications, aligning with India’s comparative advantage in IT, healthcare, education, and skilled manpower. 
  • For instance, India–EFTA TEPA, secures enhanced access in over 100 sub-sectors across EFTA nations and includes Mutual Recognition Agreements (MRAs) for professionals like nurses, accountants, and architects. 
• Integrating into Global Value Chains (GVCs): FTAs facilitate India’s participation in regional and global supply chains by easing rules of origin, standards, and investment flows, supporting initiatives like Make in India. 
  • For instance, India–Australia ECTA  agreement secures a stable supply of critical minerals like lithium, cobalt, and nickel,essential for India’s battery and solar manufacturing sectors. 
• Attracting Foreign Investment: Predictable trade rules and investment protections under FTAs enhance investor confidence and encourage long-term FDI into manufacturing and infrastructure. 
  • For instance, India–EFTA TEPA commits EFTA nations to channel $100 billion in foreign direct investment (FDI) into India over the next 15 years, alongside creating one million direct jobs. 
• Strategic and Geopolitical Considerations: FTAs help India strengthen economic diplomacy with key regions, reduce overdependence on a few markets, and position itself as a reliable alternative in a fragmented global trade order. 
  • India is using FTAs to position itself as the global alternative to China. By signing deals with developed markets, India ensures that global supply chains for electronics, semiconductors, and pharmaceuticals have a "duty-free" home in India.  
    • For instance,  India–UK CETA allows companies to manufacture in India and export back to their home markets without tariffs, directly competing with Chinese manufacturing hubs. 
• Learning from Past Hesitation: After staying out of mega trade pacts like RCEP, India is pursuing selective, calibrated FTAs that balance openness with safeguards for sensitive sectors such as agriculture and MSMEs. 
  • In the India–New Zealand negotiations, sensitive sectors like dairy and certain animal and vegetable products have been excluded despite dairy forming nearly one-third of New Zealand’s exports.  

What are the Major Issues Associated with India’s FTAs? 

• Widening Trade Deficits with FTA Partners: India has recorded persistent and, in some cases, rising trade deficits with major FTA partners such as ASEAN, Japan and South Korea. 
  • Imports have grown faster than exports, reflecting asymmetrical competitiveness and limited export diversification. 
  • For instance, between FY 2009 and FY 2023, India's imports from ASEAN surged by 234.4%, while its exports to the bloc increased by only 130.4%. 
• Low Utilisation of FTA Benefits by Exporters: Many Indian exporters, especially MSMEs, do not fully utilise FTA provisions due to inadequate awareness, lack of capacity to navigate complex documentation, and limited understanding of rules of origin, reducing expected export gains. 
  • India's FTA utilization rate as per the Asian Development Bank, has remained under 25%, among the lowest in Asia. 
• Persistence of Non-Tariff Barriers (NTBs): Despite tariff concessions, Indian exports often face restrictive standards, sanitary and phytosanitary measures, technical regulations, and certification requirements in partner markets, particularly in agriculture, food products, and pharmaceuticals. 
  • For example, Basmati Rice, Milk, and chemicals from India consistently face NTBs in European markets especially regarding pesticide residue limits (MRLs) for rice (like Tricyclazole), contamination risks (molds, microbes), and documentation gaps (traceability, certificates). 
• Weak Manufacturing Competitiveness: Structural issues such as high logistics costs, fragmented supply chains, and lower productivity reduce the ability of Indian manufacturing to compete with imports from FTA partners, leading to import surges in electronics, machinery, and chemicals. 
  • For instance, Indian SMEs face difficulty competing with ASEAN firms due to the latter’s deeply integrated production networks, lower logistics costs, and faster customs clearance.  
  • Recent 2024–25 government reports show India has brought logistics cost down to 7.97% of GDP. It shows improvement, however, competitors like Vietnam and Thailand operate with highly efficient, port-led industrial clusters that keep their effective cost per unit lower for global markets.  
• Complex and Restrictive Rules of Origin: Complicated rules of origin increase compliance costs and discourage firms from claiming preferential tariffs, while also raising concerns about third-country dumping through FTA routes. 
  • It leads to the Spaghetti Bowl Effect, because every FTA (India-ASEAN, India-UAE, India-Australia) has slightly different rules, a company exporting to three different regions must maintain three different sets of compliance paperwork for the exact same product. 
• Limited Gains in Services Trade: Although services are India’s comparative advantage, many FTAs provide limited market access due to restrictive visa regimes, caps on professional mobility, and slow progress on mutual recognition of qualifications. 
  • For instance, in India-Japan CEPA, stringent Japanese language requirements for high-skilled migrants and a lack of standardized mutual recognition for professional qualifications in engineering and healthcare, limits the effective utilization of the pact. 
• Inadequate Safeguards for Sensitive Sectors: Agriculture, dairy, and MSMEs remain vulnerable to import competition where safeguards are weak, poorly triggered, or insufficiently tailored to domestic realities. 
  • For instance, ASEAN-India Free Trade Agreement (AIFTA) significantly reduced tariffs on products like palm oil from Malaysia and Indonesia, leading to a surge in cheap imports, which genuinely pressured Indian farmers, especially for edible oils, creating tough competition and impacting domestic producers 
• Implementation and Monitoring Gaps: Weak institutional mechanisms to monitor FTA outcomes, address grievances, and renegotiate problematic provisions limit timely policy correction and learning. 
  • In India–South Korea CEPA, imports of steel and electronic goods rose sharply while Indian exports remained subdued, yet timely sector-specific reviews and corrective renegotiations were limited. 
  • Industry bodies repeatedly flagged misuse of rules of origin and market access barriers, but weak monitoring mechanisms delayed policy response. 

How Can India Improve the Utilisation of Its Free Trade Agreements? 

• Strengthening Exporter Awareness And Handholding: Many Indian exporters, especially MSMEs, remain unaware of FTA benefits or struggle with compliance.  
  • Sector- and district-level outreach through DGFT, Export Promotion Councils, and industry bodies, along with dedicated FTA facilitation cells, can improve understanding of tariff schedules, documentation, and partner-country regulations. 
• Simplifying Rules Of Origin And Trade Procedures: Complex and restrictive rules of origin raise compliance costs and discourage utilisation.  
  • Rationalising product-specific rules, promoting self-certification with robust audits, and fully digitising certificates of origin can increase preference utilisation while preventing misuse. 
• Proactively Addressing Non-Tariff Barriers (Ntbs): Indian exports often face SPS, TBT, and standards-related barriers despite tariff cuts. 
  • Creating country- and sector-specific NTB monitoring desks can help document exporter grievances and pursue their resolution through FTA joint committees and dispute mechanisms. 
• Enhancing Domestic Competitiveness: FTAs deliver gains only when domestic firms are competitive.  
  • Further reducing logistics costs, improving infrastructure and port efficiency, supporting technology upgradation, and aligning FTAs with initiatives like PM Gati Shakti, Make in India, and PLI schemes are critical. 
• Leveraging Services Trade And Mobility Provisions: Services are India’s comparative advantage, yet many FTAs underperform due to restrictive visa regimes and lack of mutual recognition of qualifications.  
  • Active follow-up is required to operationalise mobility clauses and professional access in IT, healthcare, education, and engineering. 
• Protecting Sensitive Sectors Through Effective Safeguards: Agriculture, dairy, and MSMEs need faster and better-calibrated safeguard mechanisms to manage import surges.  
  • Regular review of tariff concessions and timely use of trade-remedy instruments can balance openness with livelihood protection. 
• Linking FTAs With Investment And Supply-Chain Strategy: FTAs should be integrated with investment promotion, industrial clusters, and supply-chain partnerships so that market access translates into domestic production, employment, and export growth. 

Conclusion

India’s Free Trade Agreements are increasingly shaped by pragmatism, strategic caution, and alignment with domestic priorities rather than blanket liberalisation. While recent FTAs reflect progress in services, mobility, and investment, their benefits remain uneven due to structural competitiveness gaps and implementation challenges. Addressing non-tariff barriers, strengthening institutional monitoring, and improving exporter readiness will be critical to convert negotiated access into real gains.  

Drishti Ias Mains Question

India’s recent Free Trade Agreements reflect a shift from headline-driven liberalisation to calibrated, interest-based trade policy. Examine this shift and assess its implications for India’s economic growth.

FAQs

1.What are Free Trade Agreements (FTAs)? 
Formal trade treaties that reduce tariffs and barriers to promote trade and economic cooperation 

2.Why is India pursuing selective FTAs? 
To balance market access with protection of sensitive domestic sectors and strategic interests. 

3.What are the key challenges with India’s FTAs? 
Trade deficits, low utilisation by exporters, non-tariff barriers, and weak implementation. 

4.How do recent FTAs differ from older ones? 
They focus more on services, mobility, investment, and supply-chain resilience rather than only tariffs. 

5.What is the way forward for effective FTA utilisation? 
Improving exporter awareness, domestic competitiveness, safeguards, and institutional monitoring.

UPSC Civil Services Examination, Previous Year Questions (PYQs)   

Prelims 

Q. Consider the following countries: (2018)

1. Australia  
2. Canada  
3. China   
4. India  
5. Japan  
6. USA  

Which of the above are among the ‘free-trade partners’ of ASEAN?   

(a) 1, 2, 4 and 5   

(b) 3, 4, 5 and 6   

(c) 1, 3, 4 and 5   

(d) 2, 3, 4 and 6   

Ans: (c)

Q. The term ‘Regional Comprehensive Economic Partnership’ often appears in the news in the context of the affairs of a group of countries known as(2016)  

(a) G20

(b) ASEAN

(c) SCO

(d) SAARC

Ans: (b)

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Mains

Q. How would the recent phenomena of protectionism and currency manipulations in world trade affect macroeconomic stability of India? (2018)

Q. Evaluate the economic and strategic dimensions of India’s Look East Policy in the context of the post Cold War international scenario. (2016)