Reference Article: Editorial | The Hindu – FTAs for a start: On India and trade pacts
UPSC Relevance:
– GS-II (Governance, International Relations)
– GS-III (Indian Economy — External Sector, Trade Policy)
India is pursuing an unprecedented acceleration in trade negotiations — driven partly by the shock of steep U.S. tariffs (up to 50%) on key exports and the urgency to diversify markets. Having already entered 20 FTAs, with new pacts signed with the UK and EFTA, India is simultaneously negotiating with the U.S., EU, Canada, and SACU, while exploring consultative channels (not accession) with RCEP. But meaningful diversification requires much more than signing agreements — it requires structural transformation of India’s export ecosystem.
Why Earlier FTAs Produced Mixed Outcomes
Commerce Ministry data reveal that several earlier FTAs deepened India’s trade deficits:
- ASEAN trade deficit widened from $10 billion (2017) to $44 billion (2023).
- With Japan, rising exports could not keep pace with high-value imports.
Key reasons:
- Weak negotiation of mutual recognition agreements (standards, certifications, rules of origin).
- Limited alignment of FTAs with India’s sectoral strengths.
- Insufficient industry consultation and poor domestic awareness.
- Partner economies exploited preferential access far better than Indian exporters.
A review process has led to some correction, reflected in the relatively more balanced outcomes of the India–UAE CEPA, where non-oil trade reached ~$100 billion (FY25).
Strategic Priorities for Ongoing Negotiations
As India pushes ahead with the U.S. and EU deals, tailor-made strategies are essential:
For the United States
India must prioritise sectors most exposed to tariff shocks:
- Services
- Seafood
- Engineering goods
- Textiles
These industries must shape India’s negotiation matrix — not the other way around.
For the European Union
Attention must centre on carbon-intensive sectors – iron and steel, cement – given the EU’s Carbon Border Adjustment Mechanism (CBAM) and its potential cost implications.
Beyond FTAs: What India Must Do
An FTA is merely a gateway; real gains require deep domestic strengthening:
- Build world-class standards, certification capacities and testing infrastructure.
- Strengthen exporters with technology, logistics, trade intelligence, and GVC integration.
- Modernise domestic industries to compete globally rather than relying on tariff protection.
- Ensure rules of origin enforcement to prevent partner-country tariff evasion via third-country routing.
Conclusion
India’s move toward a diversified, resilient export portfolio is welcome, but FTAs alone cannot deliver transformation. Without parallel reforms — in quality standards, production capabilities, and export support — agreements risk repeating past mistakes. A strategic, sector-backed, and implementation-intensive approach is the only path to ensuring that India’s new trade pacts generate sustainable and competitive long-term gains.