India’s Free Trade Agreements (FTAs): Benefits, Challenges & Strategic Importance

9 Jun 2026

With the India-Oman agreement taking effect on June 1, India now has 15 FTAs covering 27 countries.

Another nine agreements with 42 countries are nearing completion. Once finalised, India’s FTA partners will total 69 countries and could account for nearly 75 per cent of the country’s exports.

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About Free Trade Agreements (FTAs)

Free Trade Agreement (FTA) is a trade pact between two or more countries that aims to reduce or eliminate tariffs, quotas, and trade barriers on goods and services to promote greater trade and investment flows.
Examples of India’s FTAs
- India–Mauritius FTA (2021): Marked the beginning of India’s recent expansion in trade agreements.
- India–UAE CEPA (May 2022): Strengthened trade and economic partnership with the UAE.
- India–Australia ECTA (December 2022): Enhanced market access and economic cooperation.
- EFTA TEPA (Signed March 2024, entered into force October 2025): Expanded India’s engagement with European partners.
- India–UK CETA (July 2025) and India–Oman CEPA (December 2025): Further widened India’s trade partnerships.
- India–New Zealand FTA (December 2025) and India–EU FTA (January 2026): Added major economies to India’s trade network.
- India–US Interim Agreement Framework (February 2026): Strengthened India’s global trade presence.

Key Features of FTAs

Tariff Reduction: Member countries reduce or remove customs duties on products traded among them, making imports and exports cheaper.
Market Access: FTAs provide businesses from partner countries easier access to each other’s markets.
Rules of Origin: Products must meet certain criteria to qualify for preferential tariff benefits and prevent misuse by third countries.
Investment and Services: Many modern FTAs also cover areas like investment, intellectual property, digital trade, and services.

Challenges Associated with India’s FTAs

Rising Trade Deficit: India’s trade deficit with FTA partners has expanded significantly; between 2007-09 and 2024-25, the deficit with ASEAN increased by 381%, Japan by 318%, and South Korea by 268%, compared to 142% with the rest of the world.
Large External Imbalance: Over the last three years, India’s average annual trade deficit with ASEAN, Japan and South Korea has reached around $62 billion, indicating that FTAs have not generated export growth at a similar pace.
Unequal Market Access: Most FTA partners are already low-tariff economies, with average MFN tariffs near zero in Singapore and below 4% in Japan, Australia, Malaysia and UAE, whereas India’s trade-weighted MFN tariff is around 12.6%.
Greater Advantage to Foreign Exporters: When India reduces tariffs under FTAs, foreign exporters gain a significant price advantage in the Indian market, while Indian exporters receive limited additional benefits because partner markets are already relatively open.
Low Export Utilisation: Only around 20-30% of India’s eligible exports are estimated to use FTA preferences due to compliance costs, certification requirements and rules of origin procedures.
Higher Import Utilisation: Importers benefit more as India’s tariff reductions create larger savings; utilisation rates on the import side are estimated at 60-70%, widening the imbalance.
Higher Input Costs: FTAs have intensified the problem where duties on raw materials and industrial inputs remain higher than duties on finished goods, raising production costs for Indian manufacturers.
Manufacturing Disadvantage: For example, steel and aluminium face MFN duties of 7.5-10%, while machinery and engineering products made from these inputs can enter India duty-free under some FTAs, reducing competitiveness of domestic producers.
Downstream Industry Pressure: Sectors such as chemicals, plastics, rubber and textiles face higher input costs due to duties on materials like caustic soda, polypropylene, PVC and SBR, while finished goods enter at lower tariffs.
Weakening Make in India Goals: Such tariff distortions discourage domestic value addition and make it harder for Indian industries to integrate into global supply chains.
Cost Disadvantage for Indian Firms: Domestic manufacturers often compete against imported products produced with globally priced inputs and preferential tariff access, reducing their competitiveness.

Reasons Behind India’s Renewed Emphasis on FTAs

Diversification of Export Markets: India aims to reduce dependence on a few traditional markets and gain preferential access to new and high-growth markets.
Integration with Global Value Chains (GVCs): FTAs help India attract global companies and integrate into international supply chains, especially under the China+1 strategy.
Boosting Manufacturing Competitiveness: Greater market access can support initiatives like Make in India and Production Linked Incentive (PLI) by enabling Indian firms to achieve economies of scale.
Attracting Foreign Direct Investment (FDI): Trade agreements provide stable rules, investor confidence and access to larger markets, making India more attractive for global investors.
Countering Rising Protectionism: With increasing trade restrictions and supply chain disruptions globally, FTAs help secure reliable trade partnerships.
Expanding Services Trade: Modern FTAs create opportunities for India’s strengths in IT services, finance, education, healthcare and digital trade.
Reducing Dependence on Imports from Limited Sources: Diversified trade partnerships can improve supply chain resilience for critical goods, technology and raw materials.
Strengthening Strategic Partnerships: FTAs serve as economic diplomacy tools, deepening relations with countries in the Indo-Pacific, Europe and West Asia.
Post-COVID Supply Chain Reorganisation: Global firms are shifting production networks, creating an opportunity for India to become an alternative manufacturing hub.

Benefits of FTAs for India

Export Growth: FTAs provide Indian exporters preferential access to global markets by reducing tariffs and trade barriers, helping sectors like textiles, pharmaceuticals and engineering goods expand internationally.
FDI and Investment: Stable trade rules under FTAs attract foreign investment and support India’s integration into global value chains through initiatives like Make in India.
Technology Transfer: Modern FTAs promote investment, digital trade and cooperation, enabling access to advanced technologies and global best practices.
Consumer Benefits: Lower tariffs increase product variety, improve competition and provide consumers access to goods at competitive prices.
Manufacturing Competitiveness: FTAs can help Indian industries access cheaper raw materials, machinery and global markets, improving productivity and scale.
Strategic Partnerships: Trade agreements strengthen economic and diplomatic relations with important countries and enhance India’s role in global trade.

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Sectoral Opportunities from FTAs

Electronics and Semiconductors: FTAs can help India access critical components, technology and global supply chains.
- Supports initiatives like semiconductor manufacturing and electronics exports.
Pharmaceuticals: Better market access can expand India’s role as a global supplier of affordable medicines.
Agriculture and Food Processing: FTAs can open markets for processed foods, marine products, spices and agricultural goods, provided quality standards are improved.
Services Sector: India can gain significantly from FTAs covering:
- IT services
- Digital economy
- Professional services
- Education and healthcare

Way Forward

Balanced Negotiations: India should focus on reciprocal FTAs that ensure equal market access while protecting sensitive sectors like agriculture and MSMEs.
Improve Competitiveness: Reducing logistics costs, improving infrastructure, enhancing skills and ensuring quality standards are essential to convert FTAs into export gains.
Reduce Input Cost Disadvantage: Rationalising tariffs on raw materials and intermediate goods will help domestic manufacturers compete with imported products.
Increase FTA Utilisation: Simplifying rules of origin, reducing compliance costs and creating awareness among exporters can improve usage of FTA benefits.
Strengthen Domestic Industry: FTAs should be aligned with policies like PLI, Make in India and MSME support to promote domestic value addition.
Focus on High-Quality FTAs: Future agreements should prioritise services, digital trade, green technology and investment rather than only tariff reductions.

Conclusion

India’s renewed focus on FTAs goes beyond simply increasing trade volumes; it reflects an effort to adapt to a fragmented global economic environment. With growing geopolitical uncertainties and weakening multilateral institutions, FTAs are becoming instruments for strategic partnerships, supply-chain resilience and economic security.
Going forward, India’s trade policy will be shaped not only by economic gains but also by broader strategic considerations.

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Difference Between Free Trade Agreement (FTA) and Allied Trade Concepts

Concept	Meaning	Tariff Reduction	Scope	Example
Free Trade Agreement (FTA)	Agreement between two or more countries to reduce or eliminate tariffs and trade barriers among member countries.	High — tariffs on many goods/services are reduced or removed.	Trade in goods, services, investment, rules of origin, etc.	India–UAE CEPA, India–Australia ECTA
Preferential Trade Agreement (PTA)	Agreement where countries provide preferential tariff treatment on selected products, but not complete tariff elimination.	Limited reduction on specific products.	Narrower than FTA; covers selected goods.	India–MERCOSUR PTA
Comprehensive Economic Partnership Agreement (CEPA)	A broader form of FTA covering trade, services, investment, intellectual property and economic cooperation.	Significant tariff reduction.	Goods + services + investment + regulatory cooperation.	India–UAE CEPA
Economic Cooperation Agreement (ECA)	Agreement focused mainly on cooperation in economic areas rather than extensive tariff liberalisation.	May include limited tariff concessions.	Technology, investment, capacity building, cooperation.	India–Australia ECTA
Customs Union	Countries remove tariffs among themselves and adopt a common external tariff against non-members.	Zero/low internal tariffs.	Trade policy is jointly managed.	European Union (EU) Customs Union
Common Market	Customs union plus free movement of goods, services, capital and labour among members.	No internal tariffs.	Wider economic integration.	European Union (EU)
Economic Union	Highest level of integration involving common economic policies and institutions.	No trade barriers + coordinated policies.	Monetary, fiscal and economic coordination.	European Union (partially)
Multilateral Trade Agreement	Trade agreement involving multiple countries under a global framework.	Depends on agreement.	Wider global trade rules.	WTO agreements
Bilateral Trade Agreement	Trade agreement between two countries.	Usually reduces tariffs between two partners.	Limited to two nations.	India–Japan CEPA
Regional Trade Agreement (RTA)	Trade agreement among countries within a region.	Varies from PTA to FTA.	Regional economic integration.	ASEAN Free Trade Area