India’s FTA Strategy Shifts from Expanding Agreements to Maximising Market Access and Export Utilisation

Recent Developments and Current Context:

• India’s Free Trade Agreement (FTA) strategy is increasingly shifting from merely expanding the number of agreements towards effective utilisation of negotiated market access, greater export diversification and wider participation of Indian firms.
• India recorded its highest-ever combined merchandise and services exports of US$863.1 billion in FY 2025–26, comprising US$441.8 billion in merchandise exports and US$421.3 billion in services exports.
• FTA partner countries and trade blocs accounted for about 40.5% of India’s merchandise exports in FY 2025–26, indicating the growing importance of preferential trade arrangements in India’s external sector.
• India’s recent agreements with the United Arab Emirates, Australia, the United Kingdom, EFTA and other partners have expanded preferential access for Indian goods and services.
• Under the India–Australia Economic Cooperation and Trade Agreement, all Indian exports, including food, agricultural and marine products, became eligible for zero-duty access to the Australian market from 1 January 2026.
• India’s services exports reached US$421.3 billion in FY 2025–26, with telecommunications, computer and information services contributing US$206.6 billion, or about 49.03% of total services exports.
• The India–United Kingdom Comprehensive Economic and Trade Agreement and the India–New Zealand Free Trade Agreement represent the continuing expansion of India’s trade architecture, while existing agreements are also being reviewed and upgraded.
• The ASEAN–India Trade in Goods Agreement is also undergoing review, reflecting India’s emphasis on improving the quality and effectiveness of existing trade arrangements rather than focusing only on signing new agreements.

Understanding Free Trade Agreements:

Meaning of an FTA:

• A Free Trade Agreement is a treaty between two or more countries that seeks to reduce or eliminate trade barriers among the participating economies.
• FTAs generally provide preferential treatment through reduced or zero customs duties, improved market access and simplified trade procedures.
• Modern FTAs increasingly extend beyond merchandise trade to include services, investment, intellectual property rights, digital trade, government procurement, competition and trade facilitation.
• An FTA does not necessarily mean completely free trade because participating countries may retain tariffs, quotas or other restrictions for sensitive sectors.

FTA, PTA and CEPA:

• A Preferential Trade Agreement (PTA) provides preferential tariff treatment on selected products but generally has narrower coverage than an FTA.
• A Free Trade Agreement (FTA) substantially eliminates or reduces tariffs on goods traded between partner countries.
• A Comprehensive Economic Partnership Agreement (CEPA) generally covers a wider range of areas, including goods, services, investment and other economic issues.
• The distinction is important for UPSC because India's trade architecture includes FTAs, PTAs, CEPAs and broader economic partnership arrangements.

India’s Recent FTA Performance:

India–UAE CEPA:

• The India–UAE Comprehensive Economic Partnership Agreement came into force in 2022 and has become an important example of India's effort to convert preferential market access into higher exports.
• India’s merchandise exports to the UAE reached approximately US$37.36 billion in FY 2025–26, making the UAE one of India's most important FTA-linked export markets.
• The agreement provides India preferential or duty-free access across a large share of UAE tariff lines and covers a substantial proportion of India's exports.
• The agreement is particularly relevant for labour-intensive sectors, MSMEs, agriculture and processed products, where improved market access can generate employment and broaden export participation.
• India and the UAE have also set an ambitious objective of increasing bilateral trade substantially, reflecting the strategic importance of the UAE as both a trade and investment partner.

India–Australia ECTA:

• The India–Australia Economic Cooperation and Trade Agreement was signed in 2022 and entered into force on 29 December 2022.
• India’s merchandise exports to Australia reached approximately US$7.28 billion in FY 2025–26.
• From 1 January 2026, all Indian exports, including agricultural and marine products, became eligible for zero-duty access to Australia.
• The agreement has supported export opportunities in sectors such as textiles, pharmaceuticals, chemicals, agriculture and marine products.
• India and Australia are also negotiating a broader Comprehensive Economic Cooperation Agreement, which seeks deeper integration in goods, services, digital trade and other emerging areas.

How FTAs Create Market Access:

Preferential Tariffs:

• The principal immediate benefit of an FTA is preferential tariff access, under which eligible Indian products can enter partner markets at lower or zero customs duties.
• However, tariff reduction alone does not guarantee higher exports because exporters must satisfy rules of origin, technical standards, sanitary and phytosanitary requirements, documentation and other regulatory conditions.

Certificate of Origin:

• A Certificate of Origin establishes that a product qualifies as originating from the exporting country under the applicable rules of origin.
• Exporters generally require the prescribed origin documentation to claim preferential tariff treatment under an FTA.
• Greater utilisation of Certificates of Origin can therefore indicate increasing awareness and usage of negotiated tariff preferences by exporters.

Rules of Origin:

• Rules of Origin determine the economic nationality of a product for the purpose of receiving preferential treatment.
• They prevent third countries from routing goods through an FTA partner merely to obtain lower tariffs.
• Effective rules of origin therefore balance two objectives, preventing trade deflection while keeping compliance manageable for genuine exporters.

Why FTA Utilisation Matters:

From Agreement Creation to Actual Usage:

• Signing an FTA creates a legal framework for market access, but the economic benefit arises only when Indian firms actually use the preferences.
• Low utilisation can occur because exporters are unaware of the agreement, compliance costs are high, rules of origin are complicated or foreign standards remain difficult to satisfy.
• India’s current trade strategy therefore increasingly emphasises FTA utilisation, exporter awareness, trade facilitation and market intelligence.

Product Diversification:

• Effective FTA utilisation can help India move beyond traditional export products by opening opportunities for new product categories and new firms.
• Product diversification reduces excessive dependence on a limited number of commodities and markets.
• It can also improve India's resilience against country-specific demand shocks and global trade disruptions.

Importance for Labour-Intensive Sectors:

Employment and MSMEs:

• FTAs can create export opportunities in textiles, footwear, leather, gems and jewellery, food processing, handicrafts, engineering goods and other labour-intensive sectors.
• Greater access to foreign markets can allow Micro, Small and Medium Enterprises to integrate into international value chains.
• Export expansion in labour-intensive sectors can generate employment because these industries generally have relatively high employment elasticity compared with capital-intensive sectors.
• However, market access must be accompanied by improvements in productivity, quality standards, logistics and access to trade finance.

Importance of Services in India’s FTA Strategy:

India’s Services Export Advantage:

• India’s services exports reached US$421.3 billion in FY 2025–26, demonstrating the increasing importance of services in India's external sector.
• Telecommunications, computer and information services contributed US$206.6 billion, while business services contributed US$124.2 billion in FY 2025–26.
• Services therefore provide India with an important comparative advantage in areas such as information technology, business-process services, professional services, finance, education, healthcare and digital services.

Beyond Tariffs:

• Unlike goods trade, services trade is often affected more by regulatory barriers, professional qualification requirements, data regulations, mobility restrictions and recognition of credentials than by customs duties.
• India therefore seeks greater Mode 4 market access, which concerns the temporary movement of natural persons to provide services.
• Mutual Recognition Agreements can help Indian professionals by enabling partner countries to recognise specified professional qualifications.
• FTAs can consequently become instruments for expanding India's services exports and skilled employment opportunities, rather than merely reducing merchandise tariffs.

Major Challenges in India’s FTA Strategy:

Low Preference Utilisation:

• Indian exporters may not fully utilise tariff preferences because of complex documentation, rules of origin, lack of awareness and compliance costs.
• Small exporters are particularly vulnerable because they often have fewer resources for navigating complicated trade procedures.

Non-Tariff Barriers:

• Even after tariffs are reduced, exporters may face technical barriers to trade, sanitary and phytosanitary measures, certification requirements and domestic regulatory standards.
• Such barriers can substantially reduce the practical value of nominal tariff concessions.

Import Competition:

• FTAs can also increase imports into India, creating competitive pressure on domestic producers.
• Sensitive sectors such as agriculture, dairy and certain manufacturing industries may require calibrated tariff concessions and appropriate safeguards.
• India therefore follows a differentiated approach in negotiating sensitive sectors rather than offering unrestricted market access.

Trade Diversion:

• FTAs can sometimes cause trade diversion, where imports shift from a more efficient non-member country towards a less efficient member because of preferential tariffs.
• The economic gains from an FTA therefore depend on the balance between trade creation and trade diversion.

Rules of Origin and Supply Chains:

• Strict rules of origin can reduce the attractiveness of preferential access if Indian exporters depend heavily on imported intermediate goods.
• India must therefore balance domestic value addition with integration into global value chains.

India’s Emerging Trade Strategy:

Expanding the FTA Network:

• India is simultaneously pursuing new agreements and upgrading existing arrangements.
• The Government has been engaged with partners including the European Union, Peru, Chile, New Zealand, Oman and other economies, while discussions are also underway with the Eurasian Economic Union.
• Existing agreements such as the India–Korea CEPA are also being considered for upgradation to improve market access and address emerging trade issues.

Deepening Existing Agreements:

• The next phase of India’s FTA strategy involves improving the implementation of existing agreements rather than measuring success only by the number of agreements signed.
• The review of the ASEAN–India Trade in Goods Agreement illustrates this shift towards improving the functioning of established trade arrangements.
• India’s trade policy is consequently moving towards market-access utilisation, export diversification, services integration and supply-chain resilience.

Significance for the Indian Economy:

Export-Led Growth:

• Greater FTA utilisation can expand India's export markets and support foreign-exchange earnings, employment and economic growth.
• A wider export base can also reduce excessive dependence on individual markets and improve resilience against global economic shocks.

Integration with Global Value Chains:

• FTAs can encourage multinational and domestic firms to integrate India more deeply into Global Value Chains.
• Predictable market access can improve India's attractiveness as a manufacturing and investment destination.
• However, this requires competitive logistics, reliable infrastructure, skilled labour and efficient customs procedures.

Strategic and Geoeconomic Benefits:

• FTAs increasingly function as instruments of geoeconomic diplomacy, allowing India to deepen strategic relationships through economic interdependence.
• Agreements with the UAE, Australia, the UK, EFTA and other partners can strengthen India's presence across the Indo-Pacific, Europe and West Asian markets.
• Diversified trade partnerships can also reduce excessive dependence on a limited number of major markets.

Way Forward:

Making FTAs More Effective:

• India should move from an FTA signing approach to an FTA utilisation approach by systematically monitoring preference utilisation at the product and firm levels.
• Exporters, particularly MSMEs, should receive easier access to information on tariffs, rules of origin, standards, documentation and foreign-market regulations.
• Digital trade platforms can reduce compliance costs and improve access to FTA-related information.
• India should negotiate stronger provisions addressing non-tariff barriers, technical standards and professional mobility, particularly in sectors where tariff barriers are already low.
• Greater use of Mutual Recognition Agreements can improve access for Indian professionals in overseas markets.
• Export competitiveness must be strengthened through better logistics, infrastructure, trade finance, skilling, quality certification and research and development.
• Sensitive domestic sectors should receive carefully calibrated protection while avoiding excessive barriers that undermine India's integration into global value chains.
• Periodic review of FTAs should be based on measurable indicators such as export growth, product diversification, preference utilisation, MSME participation and services-market access.

Conclusion:

• India’s FTA journey is entering a more mature phase in which the central challenge is no longer simply how many agreements India has signed, but how effectively Indian businesses utilise the market access created by those agreements.
• The record US$863.1 billion exports in FY 2025–26 demonstrates the expanding capacity of India's merchandise and services sectors, while growing exports to several FTA partners indicate the potential of preferential market access.
• The next phase should combine FTA utilisation, export diversification, services-market access, MSME integration and global value-chain participation.
• A successful FTA strategy must therefore connect international market access with domestic competitiveness so that tariff preferences translate into higher exports, employment, investment and sustainable economic growth.

Value Addition for UPSC:

Key Concepts:

• Trade Creation: An FTA can shift consumption towards lower-cost imports from member countries, improving economic efficiency.
• Trade Diversion: An FTA can shift imports from a more efficient non-member country to a less efficient member because of preferential tariffs.
• Rules of Origin: These determine whether a product qualifies for preferential treatment under an FTA.
• Non-Tariff Barriers: These include technical standards, sanitary and phytosanitary requirements, licensing conditions and regulatory restrictions.
• Trade Facilitation: It involves simplifying, modernising and harmonising export-import procedures to reduce transaction costs.
• Mutual Recognition Agreement: It facilitates recognition of professional qualifications or regulatory standards between partner countries