Free Trade Agreements (FTAs) and India’s Trade Challenges: Opportunities & Concerns

Context: India has expanded its network of FTAs. The recently implemented India–Oman FTA has increased India’s total FTAs to 15 agreements covering 27 countries. Another 9 FTAs covering 42 countries are under discussion, which could expand India’s FTA network to 69 countries covering around 75% of India’s exports.

Meaning of Free Trade Agreement: A Free Trade Agreement is an arrangement between countries where tariffs (custom duties) on goods and services are reduced or eliminated to promote trade.

Challenges of FTAs for India:

• Rising Trade Deficit: Imports have often grown faster than exports after FTAs. For example, India’s trade deficit widened with ASEAN, Japan, and South Korea. Under the EFTA agreement, India exported about $48.6 billion but imported nearly $100 billion, creating a large deficit. However, with some South Asian countries, India has seen trade surplus growth.

• Issue: India has become a major market for foreign products but has not fully leveraged access to partner markets.

Tariff Asymmetry: India’s MFN tariff averages around 12.6%, higher than many developed economies. When India reduces tariffs under FTAs, the concessions are often larger compared to partners like Australia, which already have lower tariffs. This creates asymmetry and opens India’s market more widely than the partner country’s.