Context:

• India is accelerating the signing of Free Trade Agreements (FTAs) and Regional Trade Agreements (RTAs), including a likely FTA with New Zealand, alongside ongoing talks with Oman, Chile, Israel, Canada, the EU and the UK.
• This surge comes amid global trade uncertainty, weakening of the WTO, and shifting geopolitical alignments, especially after the US retreat from multilateralism under Donald Trump.

Sudden Spurt in FTAs:

• At first glance, India’s enthusiasm appears puzzling because past FTAs have delivered limited economic gains.
• However, a closer look reveals that the motivation is increasingly strategic and political, rather than purely economic.

 FTAs Through the Lens of Trade Theory:

• FTAs rarely create new trade:
  • Empirical evidence suggests FTAs usually formalise existing trade flows rather than generate new ones.
  • FTAs create winners (export-oriented firms) and losers (domestic firms facing import competition).
  • Agreements succeed only when political support and opposition balance out, which explains why some FTAs (e.g., ASEAN FTA) underperformed.
• Limited economic outcomes - Evidence from India’s FTAs:
  • Export share (in %) of FTA partners before and after agreements increased from 10.2 to 10.8 with ASEAN, and reduced from 1.9 to 1.4 with South Korea, and from 2.1 to 1.9 with Japan.
  • Key inference:
    • India’s export share with RTA partners has remained flat or declined.
    • FTAs failed to raise intra-RTA trade relative to global trade, undermining their economic rationale.

Structural Problems in India’s FTAs:

• Why India gained little?
  • Focus on commodity trade, where partner tariffs were already low.
  • Trade diversion, including Chinese goods routed via RTA partners.
  • Strong domestic industry resistance.
  • Underutilisation of India’s comparative advantage in services, due to resistance by ASEAN countries, and minimal services liberalisation (Singapore as partial exception).
• Services trade - The missing link:
  • India has around 18 RTAs/PTAs (Preferential Trade Agreements), but only 8 include services agreements.
  • Only 2 (ASEAN, South Korea) have defined implementation timelines.
  • Meaningful progress in services trade is visible only with South Korea and Singapore.

FTAs Beyond Economics - Strategic and Geopolitical Drivers:

• FTAs as foreign policy instruments:
  • In a fragmented global order, FTAs act as political safety nets.
  • They compensate for WTO paralysis, uncertainty caused by US–China strategic rivalry.
  • Agreements increasingly reinforce strategic alignments, not just market access.
• India’s strategic logic:
  • ASEAN and Australia FTAs aligned with broader Indo-Pacific and QUAD objectives.
  • UAE FTA reflects a clearer services-and-investment rationale.
  • Ongoing talks with the EU and UK may yield gains, but outcomes remain uncertain.
  • Renewed interest in an India–Russia FTA reflects recalibrated geopolitics.

Challenges and Way Forward:

• Limited export gains despite multiple FTAs: Shift focus from tariff cuts to services, digital trade, investment and mobility.
• Weak integration of services and investment: Align FTAs with India’s comparative advantage (IT, professional services, skilled labour).
• Domestic industry opposition: Ensure robust safeguards against trade diversion.
• Risk of FTAs becoming political symbols: Improve domestic competitiveness to leverage FTAs for not only political but also economic gains.
• Global uncertainty: Due to emerging “Big Two” (US–China) global order - strengthen coordination between Commerce Ministry and MEA - to steer trade diplomacy.

Conclusion:

• India’s evolving FTA strategy reflects a fundamental shift in the global order. RTAs are no longer primarily economic tools but strategic instruments to navigate geopolitical uncertainty.
• For India, FTAs are less about expanding exports and more about securing strategic space in a volatile world order.