India’s Strategic Pivot to FTAs        

Why in News?

India is fast-tracking negotiations and signings of Free Trade Agreements (FTAs) with partners such as New Zealand, Russia, Oman, the EU, and others, despite evidence that earlier FTAs yielded limited trade benefits.

This renewed push reflects a strategic reorientation, where FTAs are increasingly used as instruments of geopolitics, supply-chain security, and diplomatic alignment, rather than purely as trade-liberalisation tools.

Background and Context

For much of the post-1991 period, India approached FTAs cautiously, prioritising protection of domestic industry and agriculture. Experiences with agreements such as ASEAN-India FTA exposed structural weaknesses—limited export growth, widening trade deficits, and pressure on MSMEs and farmers.

However, the global trading system is undergoing a transformation:

• WTO-led multilateralism is weakening,
• Geopolitics increasingly shapes trade, and
• Supply chains are fragmenting due to US–China rivalry, sanctions, and climate regulations.

In this context, India’s FTA strategy is being repurposed—from market access to strategic insurance in a multipolar world.

Why is India Renewing Emphasis on FTAs?

1. Strategic Realignment in a Multipolar World

• Global power is shifting from a unipolar to a multipolar order amid US–China rivalry.
• FTAs are now tools of strategic engagement in regions such as the Indo-Pacific, West Asia, and Africa.
• Agreements like India-Australia ECTA and India-UAE CEPA act as political safety nets, deepening bilateral trust beyond trade.

2. Decline of Multilateral Trade Architecture

• WTO negotiations, especially the Doha Round, have stagnated.
• Protectionism and unilateral trade measures have reduced faith in global trade rules.
• FTAs allow India to pursue WTO-plus commitments in services, digital trade, and investment.
• Example: India-EFTA TEPA, with a binding commitment of USD 100 billion FDI over 15 years.

3. Diversifying Trade and Supply Chains

• India seeks to reduce dependence on traditional markets like the US, EU, and China.
• FTAs help diversify exports, secure critical minerals and energy, and build resilient supply chains.
• They operationalise the “China Plus One” strategy, positioning India as an alternative manufacturing hub.

4. Unlocking Services and Investment Potential

• India enjoys a comparative advantage in IT, healthcare, education, and fintech.
• Earlier FTAs underperformed in services liberalisation.
• Newer agreements (e.g., UAE-India CEPA) prioritise services mobility, fintech, and capital flows.

5. Supporting Domestic Manufacturing and Value Chains

• FTAs are increasingly aligned with Make in India, PLI schemes, and industrial policy.
• Strategic agreements can attract FDI, technology transfer, and integrate India into global value chains.

6. Correcting Past Asymmetries

• Earlier FTAs largely codified existing trade rather than creating new flows.
• Export shares showed marginal or negative changes with ASEAN, Japan, and South Korea post-FTAs.
• India now seeks balanced, safeguard-rich, services-oriented agreements.

Free Trade Agreements: Key Concepts

What is an FTA?
An FTA is a negotiated agreement between two or more countries to reduce or eliminate trade barriers and promote economic cooperation.

Coverage Includes:

• Tariffs and customs duties
• Rules of Origin
• Non-Tariff Barriers (TBT, SPS)
• Trade remedies
• Services, investment, IPRs, government procurement

Types:

• Bilateral – between two countries
• Plurilateral – among multiple countries
• Multilateral – under WTO

India and FTAs:

• India has signed 20 FTAs/RTAs.
• Recent deals: India-UK CETA, India-EFTA TEPA.
• Ongoing negotiations with US, EU, Canada, SACU.

Concerns with India’s Expanding FTA Network

1. Trade Deficits and Asymmetric Gains

• Imports from FTA partners often rise faster than exports.
• Example: ASEAN imports grew 234.4%, exports only 130.4% (FY 2009–23).

2. Non-Tariff Barriers (NTBs)

• Developed partners impose stringent IPR, environmental, and SPS norms.
• India’s FTA utilisation rate is only ~25%, compared to 70–80% in developed economies.
• India-EU talks stalled over data localisation and IPR concerns.

3. Impact on Domestic Sectors

• MSMEs, farmers, and labour-intensive sectors face pressure from cheaper imports.
• Inverted duty structures discourage manufacturing and favour imports.
• Example: Rubber farmers affected under ASEAN FTA.

4. Risk of Third-Country Routing

• Weak Rules of Origin enable non-FTA countries to route goods through FTA partners, harming domestic industry.

What Should Be India’s FTA Strategy Going Forward?

• Boost Domestic Competitiveness: R&D, infrastructure, skills, MSME support
• Focus on WTO-Plus Areas: Digital trade, services, green technologies
• Stronger Safeguards: Robust Rules of Origin, safeguard duties, anti-dumping tools
• Institutional Coordination: Align MEA, Commerce Ministry, and NITI Aayog
• Effective Dispute Resolution: Time-bound and independent mechanisms
• Regular Review of FTAs: Impact assessments and stakeholder consultations
• Inclusive & Sustainable Trade: Balance labour and environmental norms with domestic realities