Anantam IASPost · 17 April 2026

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

Study Notes · General Studies · GS III · Indian Economy

UPSC guide to India's free trade agreements: benefits, adverse impacts, Surjit Bhalla Committee, UAE CEPA, UK FTA and 2024-26 developments.

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

India's FTA landscape

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)

UPSC Relevance

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

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.