Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs) are increasingly shaping how nations integrate into global commerce. Ideally, these frameworks reduce barriers, streamline rules, and unlock new avenues for exports and investment. Yet their economic payoff depends not on signatures but on smart design, high utilization, and robust domestic capabilities. India’s accelerating push into new FTAs and PTAs comes at a moment when the world is stitching together a dense web of trade pacts—raising both opportunities and risks.
A Global Surge in Trade Agreements
The global trade system has undergone a dramatic transformation over the past three decades. What began with fewer than ten regional trade deals in 1990 have expanded to more than 370 by 2025. This proliferation stems from tariff uncertainties, supply-chain disruptions, and the ripple effects of US–China fragmentation.
Mega-agreements like the Regional Comprehensive Economic Partnership, covering nearly a third of global GDP, have boosted intra-bloc trade by as much as 13 percent. The CPTPP has removed tariffs on most goods traded within its network. Yet gravity-model evidence offers a sobering counterpoint: the majority of world exports still move under standard MFN tariffs, and many agreements shift rather than create trade.
India’s Rapidly Growing FTA Landscape
India now operates 13 FTAs and six PTAs, with a notable acceleration since 2020. Agreements with the UAE, Australia, Mauritius, and the European Free Trade Association (EFTA) illustrate New Delhi’s renewed appetite for market-opening deals.
Results have been mixed but significant.
· The UAE pact, with duties removed on 90 percent of goods, doubled bilateral trade to USD 84 billion by 2025.
· The Australia agreement pushed India’s exports up 14 percent in FY25.
· The EFTA deal promises USD 100 billion in investment and one million jobs over 15 years.
Simultaneously, negotiations with the EU, UK, Oman, and others aim to erase up to 99 percent of tariffs. Yet India’s use of existing preferences remains low—often 10–40 percent, well below partner benchmarks—due to complex rules of origin and compliance burdens.
Gains, Gaps, and the Productivity Puzzle
India clocked record exports of USD 825 billion in FY25, supported by FTA-driven gains in electronics, engineering goods, and pharmaceuticals. Non-oil exports to key FTA partners surged by 20 percent annually.
But deficits tell a different story. India’s trade gaps with ASEAN, South Korea, and Japan have widened by triple digits since these pacts were signed. High domestic tariffs relative to near-zero partner rates have encouraged import surges in electronics, chemicals, and autos—pressuring manufacturing clusters and MSME employment.
Underutilization remains a structural weakness. Multiple analyses point to documentation hurdles, non-tariff barriers, and limited services liberalization. Only a minority of India’s agreements meaningfully address mobility or regulatory alignment, narrowing the country’s comparative advantage.
Strategy Versus Economics
Trade policy is increasingly entangled with geopolitics. As economist Manoj Pant argues, FTAs often function as strategic insurance as much as economic tools—especially amid US–China competition and shifting Indo-Pacific alignments. India’s pacts with ASEAN and Australia were shaped by security considerations, sometimes at the expense of commercial gains. Meanwhile, a possible India–Russia agreement is resurfacing as an energy hedge despite stalled progress.
Pant’s caution is clear: strategic motivations might justify certain deals, but without economic rigor and symmetry, FTAs risk underperforming.
Converting Agreements into Outcomes
India’s expanding FTA footprint reflects ambition and strategic intent. Yet productivity demands more than proliferation. To unlock real gains, India must simplify rules of origin, expand services commitments, deepen domestic competitiveness, and secure reciprocal market access. Only with such reforms can FTAs evolve from occasional successes into consistent engines of trade, investment, and supply-chain resilience—positioning India as a central actor in a multipolar global economy.
(With inputs from agencies)
