India’s free trade settlement playbook is increasing quickly, however a brand new report suggests the outcomes have gotten tougher to have a good time.
As New Delhi pursues trade offers throughout Europe, the Gulf and North America, a report by the International Trade Analysis Initiative (GTRI) warns that a number of structural weaknesses are deepening. Rising trade deficits, restricted use of FTA advantages by exporters, manufacturing distortions and rising regulatory burdens are among the many points that would erode the features from India’s widening community of trade agreements.
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The findings are outlined in GTRI’s FTA Report Card 2026, which evaluates the efficiency of present agreements and highlights dangers that would affect future negotiations.
The report comes at an important juncture for India’s trade coverage. The nation has 15 operational FTAs protecting 27 nations, whereas one other 9 agreements involving 42 nations are awaiting implementation, nearing conclusion or underneath negotiation. Collectively, these 69 nations account for 75.3% of India’s exports and 65.5% of its imports.
With FTAs more and more central to India’s trade technique, GTRI argues that the main target has been disproportionately on the tempo and scale of deal-making quite than on measurable financial outcomes.
The report identifies six challenges that policymakers can not afford to miss: widening trade deficits, low utilisation of preferential market entry by Indian exporters, worsening inverted obligation buildings, the shifting of producing exercise to companion nations, increasing obligations underneath new-generation trade agreements, and rising carbon-linked trade boundaries, notably from the European Union.
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Trade deficits widening a lot sooner with key FTA companions
The report’s most outstanding concern is the sharp deterioration in India’s trade stability with a number of nations which have long-standing FTAs with India.In response to GTRI, India’s trade deficit with ASEAN nations elevated by 381.4% between the pre-FTA interval of 2007–09 and 2023–25. The deficit with South Korea rose by 267.9%, whereas the hole with Japan expanded by 317.9%.
The numbers reveal a major divergence from world traits. Throughout the identical interval, India’s trade deficit with the remainder of the world elevated by 142.2%.
The report notes that over the previous three years, India’s common annual trade deficit with ASEAN, Japan and South Korea has reached roughly $62 billion.
A better take a look at the information exhibits the dimensions of the change.
With ASEAN, India’s common annual trade deficit widened from $6.8 billion earlier than the FTA to $33 billion in 2023–25. With South Korea, it expanded from $4 billion to $14.7 billion. In Japan’s case, the deficit elevated from $3.4 billion to $14.2 billion.
The pattern can also be seen in India’s newer trade agreements.
In FY2025, India exported $48.6 billion value of products to the UAE, Australia, Mauritius and EFTA nations mixed. Imports from these companions, nonetheless, approached $100 billion, leading to a trade deficit exceeding $50 billion.
The report cautions that as tariff reductions deepen underneath these newer agreements, import development may speed up additional.
South Asia stays a notable exception. India’s trade surplus with neighbouring South Asian nations elevated from $6.7 billion to round $20 billion throughout the identical interval.
Tariff asymmetry lies on the coronary heart of the issue
In response to GTRI, rising trade deficits are largely rooted in a basic mismatch between India’s tariff construction and people of its FTA companions.
Lots of India’s buying and selling companions had already liberalised their tariff regimes earlier than signing agreements with India. Singapore’s common MFN tariffs are successfully zero, whereas Japan, Australia, Malaysia and the UAE typically keep common tariffs under 4%.
India’s trade-weighted MFN tariff, in contrast, stays round 12.6%, with charges starting from zero to as excessive as 150%.
The result’s that tariff reductions underneath FTAs usually present a a lot bigger business benefit to overseas exporters coming into India than to Indian exporters promoting abroad.
The report illustrates this via precise import patterns.
Nearly all imports coming into Singapore already face zero obligation underneath MFN guidelines. Greater than 80% of imports into Japan and Malaysia are duty-free. Within the EU and the UK, greater than half of imports enter with out customs duties.
In India, nonetheless, solely round 6% of imports obtain duty-free therapy underneath MFN guidelines.
This implies exporters from companion nations usually safe substantial tariff financial savings via FTAs when accessing the Indian market, whereas Indian exporters obtain solely marginal extra advantages as a result of tariffs overseas have been already low earlier than the agreements have been signed.
Why Indian exporters barely use FTA advantages
The identical tariff imbalance additionally explains one other main problem highlighted by the report: India’s poor utilisation of FTA preferences.
GTRI estimates that solely 20–30% of India’s eligible exports make use of FTA advantages.
The reason being that claiming preferential therapy underneath FTAs includes prices. Exporters should fulfill guidelines of origin necessities, get hold of certificates and full extra documentation.
When MFN tariffs in vacation spot markets are already zero or only one–3%, many exporters discover that the financial savings don’t justify the compliance burden.
The report offers extra proof.
Imports going through MFN tariffs under 5% account for 100% of imports into Singapore, 91.9% in Japan, 86.4% in Malaysia, 73.9% in Vietnam and 66.5% in South Korea.
India’s corresponding determine is just 28.3%.
In consequence, exporters transport items into India have a far larger incentive to utilise FTAs. Solely 4.6% of India’s imports enter duty-free underneath MFN therapy, whereas 68.7% proceed to face regular customs duties.
As a result of tariff financial savings in India are important, import-side utilisation charges are estimated at 60–70%.
The report argues that rising imports and low export utilisation should not separate issues however two outcomes of the identical tariff asymmetry.
FTAs worsening India’s inverted obligation construction
The report identifies worsening inverted obligation buildings as one other unintended consequence of India’s trade agreements.
An inverted obligation construction exists when duties on uncooked supplies and industrial inputs are increased than these on completed merchandise.
In response to GTRI, this situation has existed for years however has turn out to be tougher to handle as a result of many completed merchandise now enter India at low or zero tariffs underneath FTAs with ASEAN nations, Japan, South Korea, the UAE and Australia.
In the meantime, Indian producers usually proceed paying duties on imported inputs sourced from nations exterior these FTAs.
The report highlights the metal and engineering sectors as examples.
Metal and aluminium can appeal to MFN duties of seven.5–10%, however equipment and industrial tools manufactured utilizing these supplies could enter India duty-free underneath a number of FTAs.
Indian producers due to this fact pay increased enter prices whereas competing towards imported equipment produced utilizing globally priced uncooked supplies.
The identical sample seems in chemical substances, plastics, rubber and textiles.
Inputs reminiscent of caustic soda, soda ash, polypropylene, PVC and styrene-butadiene rubber appeal to duties that increase home manufacturing prices, at the same time as completed merchandise in these sectors might be imported at low or zero tariffs.
The end result, in keeping with GTRI, is a tariff system that protects producers of fundamental supplies whereas penalising downstream producers and decreasing home worth addition.
Manufacturing could also be shifting overseas
The report argues that inverted obligation buildings are creating incentives for firms to fabricate exterior India.
When companies can import completed merchandise duty-free underneath FTAs however should pay duties on industrial inputs inside India, producing overseas could turn out to be extra engaging.
ASEAN economies are more and more benefiting from this dynamic.
The report notes that Chinese language firms have invested closely in manufacturing operations in Vietnam, Thailand and Indonesia. Indian companies have additionally established factories and joint ventures in these nations to benefit from decrease manufacturing prices and duty-free entry to the Indian market.
Industries affected embrace electronics, metal, chemical substances, plastics, engineering merchandise and shopper items.
In response to GTRI, when it turns into cheaper to fabricate in an ASEAN nation and export to India than to supply domestically, funding and jobs inevitably observe.
The report warns that FTAs can inadvertently encourage a mannequin of “Make in ASEAN, Promote in India” quite than “Make in India.”
New-generation FTAs more and more form home coverage
Past financial outcomes, GTRI warns that the character of FTAs themselves is altering.
Conventional trade agreements centered on border measures reminiscent of tariffs, quotas and customs procedures. New-generation FTAs more and more attain into home policymaking via guidelines governing labour requirements, environmental laws, digital trade, authorities procurement, competitors coverage, anti-corruption measures, gender provisions, MSME insurance policies, mental property rights and knowledge governance.
The report argues that developed-country companions are more and more looking for to align India’s home legal guidelines and regulatory frameworks with requirements established in superior economies.
Authorities procurement considerations
One of the vital delicate points recognized is authorities procurement.
Whereas procurement featured solely in restricted kind in earlier agreements such because the India–Japan CEPA and India–UAE CEPA, the just lately concluded India–UK CETA goes a lot additional.
In response to the report, UK companies will acquire legally assured entry to roughly 40,000 Indian central authorities tenders yearly throughout sectors together with infrastructure, healthcare, vitality and transport.
The settlement additionally provides UK firms entry to India’s e-procurement portal.
GTRI argues that the association could weaken India’s home procurement preferences as a result of UK companies can qualify as “Class II Native Suppliers” with solely 20% UK content material, a class initially meant to assist Indian companies underneath the Make in India programme.
The report additionally questions whether or not Indian firms will obtain comparable alternatives within the UK, noting that overseas suppliers typically account for less than a small share of procurement spending throughout Europe.
Mental property and pharmaceutical considerations
The report raises considerations about provisions encouraging voluntary licensing of medicines, arguing that they may weaken India’s capability to depend on obligatory licensing throughout public well being emergencies.
It additionally highlights adjustments in patent-related necessities that would make it tougher to find out whether or not patents are being commercially labored in India, doubtlessly delaying the entry of generic options.
Information exclusivity pressures
One other space of concern is strain from the EU and the US for “knowledge exclusivity” provisions.
Such guidelines would stop regulators from counting on present check knowledge when approving generic pesticides and agrochemicals.
The report notes that these obligations should not required underneath the WTO TRIPS Settlement and are due to this fact thought of “TRIPS-plus” commitments.
The problem is especially necessary as a result of India has emerged because the world’s third-largest agrochemical exporter, with exports rising from $1.7 billion in 2012–13 to $4.4 billion in 2024–25.
GTRI warns that accepting such provisions may enhance import dependence and lift prices for farmers.
Digital trade and knowledge sovereignty
Digital trade is one other rising battleground.
The report says developed nations, notably the US, proceed to push for stronger commitments on cross-border knowledge flows and digital governance.
It additionally factors to ongoing strain for India to just accept a everlasting moratorium on customs duties on digital transmissions.
In response to GTRI, such commitments may restrict India’s future coverage choices in areas reminiscent of synthetic intelligence, cybersecurity, knowledge safety and digital industrial technique.
EU carbon measures may neutralise FTA features
The sixth problem recognized within the report centres on Europe.
Whereas India and the European Union are shifting in direction of considered one of India’s largest trade agreements, GTRI warns that tariff advantages may very well be undermined by an increasing internet of EU regulatory necessities.
The biggest concern is the Carbon Border Adjustment Mechanism (CBAM), underneath which the EU started imposing carbon-related fees on imports of metal, aluminium, cement, fertilisers, hydrogen and associated merchandise from January 2026.
The mechanism is anticipated to develop farther from 2028 to cowl round 180 extra steel- and aluminium-based manufactured merchandise.
The report argues that this creates a doubtlessly uneven consequence. European items could obtain decrease tariff entry to India underneath an FTA, whereas Indian exports face new carbon prices when coming into Europe.
GTRI warns that CBAM-related fees may successfully eradicate most of the tariff advantages negotiated underneath the trade settlement.
The report additionally highlights extra EU laws, together with the Deforestation Regulation, International Subsidies Regulation and Company Sustainability Due Diligence necessities, which may enhance compliance prices and performance as non-tariff boundaries, notably for small and medium-sized exporters.
Competitiveness, not FTAs alone, will decide outcomes
The report concludes that signing extra trade agreements won’t mechanically enhance India’s export efficiency.
As an alternative, it recommends a complete evaluation of India’s tariff construction, systematic elimination of inverted obligation buildings, stronger home manufacturing ecosystems, and the creation of an FTA Affect Monitoring Authority to trace utilisation charges, sectoral features, import surges, trade deficits and regulatory impacts.
It additionally requires larger emphasis on mutual recognition of requirements, testing and conformity assessments to scale back non-tariff boundaries, alongside with stronger accountability mechanisms for trade negotiators.
The central message operating via the report is that FTAs can solely ship significant advantages when home business stays aggressive. With out reforms at residence, the report warns, India dangers making a trade structure that encourages increased imports, offshore manufacturing and decreased industrial capability even because the variety of trade agreements continues to develop.
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