Why India Has Yet to Fully Benefit from FTAs Despite Expanding Trade Agreements

Analysis highlights manufacturing competitiveness and non-tariff measures as key challenges limiting gains from India's Free Trade Agreements.

In the post-COVID period, Free Trade Agreements (FTAs) have become a major component of India's foreign trade strategy. India has concluded seven FTAs and is currently negotiating or implementing 17 trade agreements, with the proposed bilateral trade agreement with the United States among the most significant.

According to the analysis, nearly two-thirds of India's total trade during 2025-26 was conducted with FTA partner countries. Around 71% of exports and 57% of imports were linked to these markets. While exports to the United States remained largely unchanged during the previous fiscal year, India's exports to the European Union declined for the second consecutive year.

The analysis notes that India's implementation of FTAs has not translated into the expected increase in export opportunities. Since the end of the previous decade, exports to FTA partners have grown at a pace similar to India's overall export growth, while imports from these countries have risen at a faster rate. Overall exports increased at a compounded rate of 1.2%, whereas imports grew by 6% during the post-COVID period.

As a result, the report states that India's merchandise trade deficit has widened, reflecting the greater market access provided to partner countries under recent FTAs.

The analysis reviews India's FTAs with the Association of South East Asian Nations (ASEAN), the Republic of Korea and Japan, which have been in force for nearly one and a half decades. It states that Indian exporters have not consistently expanded their presence in these markets. Although exports to the three FTA partners increased steadily until 2022-23, the trend reversed in subsequent years, particularly in the case of Korea, where exports declined by more than 25%.

The FTA with the European Free Trade Association also generated expectations of improved market access following tariff reductions. However, exports to the four-member bloc have remained below $2 billion.

According to the analysis, two structural issues continue to limit the benefits of FTAs. The first relates to the limited effectiveness of policy measures aimed at improving manufacturing and agricultural competitiveness. The second is the growing role of non-tariff measures (NTMs), including product and process standards, which increasingly determine market access beyond tariff reductions.

The article notes that the government's Make in India initiative sought to raise manufacturing's share in GDP from 16% to 25% by 2020. Later, the Production-Linked Incentive (PLI) scheme targeted 14 strategic industries to strengthen manufacturing competitiveness and boost exports. However, the analysis states that manufacturing's share of GDP had declined to below 15% by 2025-26.

The author also argues that improvements in research and development intensity remain essential for enhancing industrial competitiveness. It recommends strengthening public-private partnerships to support investment in science and technology institutions.

The analysis further highlights the need for a comprehensive agricultural policy to improve sectoral competitiveness while meeting global food safety standards.

It notes that compliance with non-tariff measures has become increasingly important in recent FTAs. These measures include sanitary and phytosanitary standards, technical barriers to trade, environmental requirements and international labour standards. The article states that businesses must comply with these regulatory standards to benefit from preferential market access.

The analysis also points to environmental and labour-related regulations introduced by major markets, including the European Union's Carbon Border Adjustment Mechanism (CBAM), which applies a carbon tax on imports such as iron and steel, cement, aluminium, fertilisers, electricity and hydrogen. According to the article, these measures increase compliance costs for exporters and require Indian businesses to upgrade production facilities while strengthening regulatory institutions.

The article concludes that future gains from FTAs will depend not only on tariff reductions but also on improving domestic manufacturing competitiveness and addressing evolving non-tariff requirements in international trade.