India’s Experience with FTAs — Benefits, Challenges, Way Forward (UPSC)

Free Trade Agreements (FTAs) reduce tariff and non-tariff barriers between partner countries on goods, services and sometimes investment and intellectual property. India has 13+ operational FTAs, including bilateral CEPAs/CECAs with Japan, South Korea, Singapore, UAE, Australia, Mauritius, and the ASEAN trade in goods agreement. Experience has been mixed — utilisation low, trade deficits widening with several partners, yet recent FTAs with UAE, Australia and the UK hint at a smarter generation. For UPSC GS-III, FTAs are a core external-sector topic.

Rationale for FTAs

• Access to quality raw materials. Supports Make in India and Assemble in India by enabling cheaper inputs.
• Access to global markets. Enables export-led growth and market access beyond WTO MFN terms.
• GVC integration. FTAs facilitate supply-chain linkages, boosting employment, efficiency and GDP growth.
• Trade liberalisation with flexibility. Calibrated tariff reductions over time, with safeguards, rather than unilateral opening.
• Services and investment opening. Movement of natural persons, investment protection, IP alignment.

India's FTA landscape

• ASEAN Trade in Goods Agreement (2010).
• SAFTA with South Asian neighbours.
• India-Japan CEPA (2011).
• India-Korea CEPA (2010).
• India-Singapore CECA (2005).
• India-Malaysia CECA (2011).
• India-Sri Lanka FTA (2000).
• India-Thailand Early Harvest (2004).
• India-MERCOSUR PTA.
• India-SACU PTA (2010).
• India-UAE CEPA (May 2022).
• India-Australia ECTA (December 2022).
• India-Mauritius CECPA (2021).
• India-EFTA TEPA (signed 2024, operational 2025).
• India-UK FTA (signed July 2025).
• India-EU FTA in advanced negotiation.
• India-Oman CEPA in advanced negotiation.

Positive impacts

Growth of bilateral trade

India's total trade has grown with every FTA partner in the post-FTA phase.

Structure of imports and exports

FTA partners have supplied high-quality raw materials, supporting Indian manufacturing. Indian exports to partners are largely non-raw material categories.

Services trade expansion

Trade in services has grown with FTA partners in sectors like IT/ITES, telecom, finance and tourism.

Outbound FDI

Indian companies have established operations in most FTA partner countries, supporting outbound exports.

Preferential market access

UAE CEPA has sharply reduced duties on gems and jewellery, apparel, leather, engineering goods entering UAE — supporting Indian exports in these labour-intensive categories.

Adverse impacts

Widening trade deficits

India’s trade deficit with ASEAN, Korea and Japan has widened post-FTA. Imports from these partners have grown faster than Indian exports to them.

Trade quality deterioration

Across 21 major sectors, 13 have been adversely affected — minerals, leather, textiles, gems and jewellery, metals, vehicles.

Under-utilisation

FTA utilisation by Indian exporters is estimated at 5-25 per cent — a fraction of the preference value offered. MSMEs lack awareness, documentation and rules-of-origin expertise to claim FTA benefits.

Inverted duty structures

FTAs (especially with Japan, Korea) created situations where finished goods attract lower duty than intermediate inputs under BCD — incentivising imports over local manufacturing.

Rules of origin circumvention

Goods from non-FTA countries (notably China) have been rerouted through FTA partners to enter India at preferential duties. India's 2020 Customs Amendment tightened rules of origin provisions.

Sensitivity to global disruptions

Economic slowdowns or geopolitical shocks in FTA partner economies ripple into Indian trade performance.

Surjit Bhalla Committee recommendations

A key reform committee reviewed FTA strategy. Highlights:

Review existing FTAs

Conduct comprehensive review of benefits to industry and consumers; renegotiate where India's interests are not served.

Improve trade competitiveness

Reform factor markets — land, labour, capital — and reduce logistics cost.

Protect domestic market

Lay down strong technical regulations; use anti-dumping and safeguard duties to protect against low-quality imports.

Approach to services FTAs

Move beyond Mode-4 (movement of natural persons) to Mode-3 (commercial presence) — Indian service companies establishing bases abroad.

Inter-ministerial coordination

Regular meetings across Commerce, Finance, Industry, and other line ministries.

MSME handholding

Nation-wide sensitisation scheme to explain FTA potential to MSME exporters.

FTA Utilisation Mission

Dedicated mission focused on helping exporters claim benefits.

Reorient SEZs as 3Es

Baba Kalyani-aligned framework incentivising value addition, employment and technology adoption — feeding FTA export capacity.

Integrate with Government initiatives

ODOP, RoDTEP, PLI — align incentives with FTA market access to push exports.

Latest developments (2024-26)

• India-UAE CEPA — trade crossed target milestones; gems and jewellery, apparel, engineering goods see sharpest gains.
• India-Australia ECTA — Indian garments, leather, gems and jewellery get preferential access; Australian critical minerals access strengthened.
• India-EFTA TEPA (signed March 2024, operational 2025). Swiss, Norwegian, Icelandic, Liechtenstein market access; Rs 100 billion 15-year investment commitment from EFTA into India.
• India-UK FTA signed July 2025. Tariff reduction on Indian textiles, leather, seafood, gems; whisky tariff reduced; services chapter; Mode-4 partial gains.
• India-Oman CEPA in advanced negotiation; expected to benefit gems and jewellery, engineering goods, refined petroleum.
• India-EU FTA in advanced negotiation; 9th round completed mid-2025; CBAM, investment protection, data, mobility remain sticking points.
• RCEP review. India's position remains unchanged; periodic calls to revisit, but not imminent.
• Non-tariff barriers. Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR) tightened origin checks — preventing third-country rerouting.
• CBAM (EU). Full carbon levy from January 2026 affects Indian steel, aluminium, cement, fertiliser exports — reshaping FTA negotiations.
• Utilisation drives. DGFT's Export Promotion Councils conducting MSME training on FTA benefits.

UPSC Relevance

For GS-III (external sector; trade; industrial policy):

• Conceptual: tariff, non-tariff barriers, rules of origin, Mode-1 to Mode-4 services.
• Landscape: India's FTAs — including UAE, Australia, EFTA, UK.
• Analytical: benefits, adverse impacts, reasons for under-utilisation.
• Policy: Surjit Bhalla recommendations, CAROTAR Rules, FTP 2023, CBAM preparedness.

A strong mains answer provides an evaluative framework (benefits vs adverse impacts), illustrates with one or two specific FTAs (Japan-India, Korea-India as problematic; UAE, Australia as positive), and proposes a Surjit Bhalla-aligned reform path plus CBAM readiness.

Conclusion

India's FTA journey has matured — from the deficit-widening agreements of the 2000s (Korea, Japan, ASEAN) to the smarter, better-sequenced CEPAs of 2022-25 (UAE, Australia, EFTA, UK). The next test is pipeline (EU, Oman), MSME utilisation (from 25 per cent to 50 per cent+), and CBAM-era green trade competitiveness. FTAs work when they are negotiated with domestic reform in one hand and global market access in the other — not when they are treated as ends in themselves.

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