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Introduction

Despite signing multiple Free Trade Agreements (FTAs) over the past decade, India’s trade deficit with partners such as ASEAN and Japan has widened. This paradox reflects deep-seated structural weaknesses in India’s manufacturing, export competitiveness, and FTA utilisation, rather than mere tariff liberalisation outcomes.

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Structural Reasons Behind Widening Trade Deficit

• Import-heavy FTAs: India’s FTAs reduced tariffs faster on imports than exports, benefiting partner economies more.
  Eg: ASEAN FTA led to surge in electronics and machinery imports.
• Weak manufacturing base: Limited scale, technology gaps, and high logistics costs restrict India’s export competitiveness.
  Eg: India’s share in global manufacturing remains below 2%.
• Low FTA utilisation: Complex rules of origin and MSME unawareness reduce effective use of preferential tariffs.
  Eg: India’s FTA utilisation rate is ~25%.
• Value chain asymmetry: India imports high-value intermediates but exports low-value raw or semi-processed goods.
• Services underleveraged: FTAs focused more on goods, neglecting India’s strength in services exports.

Measures to Maximize Gains from Upcoming US Pact

• Services market access: Secure mobility for IT, healthcare, and professionals under Mode-4 commitments.
• Tech-manufacturing synergy: Align FTA with semiconductor, defence, and clean-tech supply chains.
  Eg: US-India iCET initiative.
• Standards alignment: Reduce non-tariff barriers via mutual recognition of standards.
• Strategic tariff calibration: Protect sensitive sectors while opening competitive export segments.
  Eg: Lessons from India’s RCEP exit.
• Digital trade rules: Ensure fair data governance protecting India’s digital sovereignty.

Measures to Maximize Gains from Upcoming EU Pact

• Green transition leverage: Use EU’s green demand to boost exports in renewables and green hydrogen.
  Eg: India-EU Clean Energy Partnership.
• Carbon adjustment readiness: Support exporters to adapt to EU’s Carbon Border Adjustment Mechanism (CBAM).
• GI and MSME protection: Safeguard India’s Geographical Indications and small producers.
  Eg: GI negotiations in India-EU FTA talks.
• Services and mobility push: Expand access for IT, education, and healthcare services.
• Labour-environment balance: Align compliance without undermining development priorities.
  Eg: India’s position on EU sustainability clauses.

Conclusion

India’s FTA experience underscores that market access alone cannot ensure trade gains. Future agreements with the US and EU must be strategic, sector-specific, and capacity-enhancing, aligning trade policy with industrial strength, services leadership, and long-term competitiveness in global value chains.

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