According to the World Trade Organisation, India has entered into 20 regional or free trade agreements (FTA).

About FTAs

• Definition:  An FTA is an arrangement between two nations under which they agree to impose zero or very minimal customs duties on goods crossing their borders. 
  • The objective is to enhance market access for both countries.
• Provisions: FTAs usually also include provisions for investment protection, intellectual property rights, labour standards, dispute resolution, and regulatory cooperation.

India’s Approach to FTAs

• Rapid Entry into FTAs: India is actively pursuing FTAs amid an increasingly protectionist global trading environment. 
  • For example, the United States has imposed tariffs of up to 50% on key Indian exports, prompting India to explore alternative markets aggressively.
• RCEP: India opted out of the Regional Comprehensive Economic Partnership (RCEP) in 2019 due to concerns over:
  • Influx of cheap Chinese imports (including those routed indirectly through ASEAN countries) and 
  • The adverse impact on the domestic dairy sector from imports originating in Australia and New Zealand.
  • India is currently exploring consultative channels regarding a potential re-entry.

Issues with Existing FTAs

• Trade Deficits: Data show that FTAs with countries such as ASEAN, Japan, and South Korea have led to India’s imports rising faster than its exports.
  • Example: The trade deficit with ASEAN grew from 10 billion in2017 to around 44 billion in 2023.
• Import Surge in High-Value Goods: FTAs, especially with Japan and South Korea, led to a surge in capital-intensive and high-value imports, deepening trade imbalances.
• Structural Issues and Non-Tariff Barriers (NTBs): Even after FTAs remove tariffs, partner countries use stringent standards and certification rules (e.g., pesticide norms) to block Indian goods, as rules of origin and mutual recognition issues remain weakly addressed.
• Lack of Consultation: FTAs were negotiated without sufficient consultation with the domestic industry, leading to agreements that were misaligned with India’s sectoral strengths.
• Low Awareness: Many Indian exporters lack awareness and capacity to utilise FTA benefits, while partner countries have effectively leveraged preferential access.

Way Forward

• Proven Example: The India–UAE CEPA shows the way forward for FTAs, as improved design and implementation helped achieve $100 billion in non-oil trade with balanced growth.
• Negotiating with the US: Future negotiations must be strategic and calibrated, focusing on sectors where India enjoys a comparative advantage, such as Services, Seafood, Engineering Goods, and Textiles.
• Negotiating with the European Union (EU):  A major challenge is the EU’s Carbon Border Adjustment Mechanism (CBAM), which taxes carbon-intensive imports. To overcome this, India must modernise its iron, steel, and cement sectors and cut emissions.

Check Out UPSC CSE Books

Visit PW Store

Conclusion

Increasing exports requires more than just signing agreements; India must support exporters by investing in better infrastructure, meeting international quality standards, and gathering better market intelligence.

DOWNLOAD PDF