India's Free Trade Agreement (FTA) Strategy: Balancing Market Access with Domestic Competitiveness

PRERNA FOR IAS

         Mehnat Aapki, Guidance Humari

         Roz ki Prelims Practice — Experts ke Saath

India's Free Trade Agreement (FTA) Strategy: Balancing Market Access with Domestic Competitiveness

(Based on Article in Hindu dated 4th August 2026 by Mr SURENDAR SINGH)

History and Background

Since the early 1990s, India has progressively integrated with the global economy through trade liberalisation and Free Trade Agreements (FTAs). Over the past decade, India has signed comprehensive FTAs with the UAE, Australia, the United Kingdom (under negotiation), the European Union (under negotiation), Oman and EFTA, while also reviewing existing agreements with ASEAN, Japan and South Korea. FTAs are intended to reduce tariffs, improve market access, attract investment, integrate domestic industries into Global Value Chains (GVCs), and promote exports. However, India's experience with several Asian FTAs has produced mixed outcomes, with rising imports often outpacing export growth.

Need for FTAs

FTAs are essential for expanding export markets, attracting foreign investment, improving technology transfer, strengthening supply chains and enhancing India's participation in global manufacturing. They help Indian firms access larger markets at lower tariff costs, diversify export destinations, and improve economic cooperation with strategic partners. In an era of supply chain realignment, well-designed FTAs can support India's ambition of becoming a global manufacturing hub.

Expectations and Actual Results

The expectation was that tariff reductions would boost exports, deepen GVC integration and improve industrial competitiveness. While recent FTAs with the UAE and Australia have shown encouraging results, India's older FTAs with ASEAN, Japan, South Korea and Singapore have not fully met these expectations. Trade with these partners has become increasingly import-driven. India's trade deficit with ASEAN, Japan and South Korea has widened, and export growth has remained relatively modest. Evidence also indicates that India's integration into regional value chains has not improved significantly despite preferential market access.

Reasons for Rising Trade Deficits

Several structural factors explain these outcomes. India's manufacturing competitiveness remains constrained by high logistics costs, infrastructure gaps, expensive credit, regulatory complexities and limited scale of production. Many Indian firms have been unable to utilise FTA preferences effectively due to quality standards and Rules of Origin requirements. Greater tariff liberalisation without corresponding improvements in domestic productivity has encouraged imports more than exports. Inadequate integration into GVCs and limited value addition have further reduced India's export competitiveness.

Solutions

India's FTA strategy must be integrated with industrial policy. Greater investment in infrastructure, logistics, skill development, research and development, MSME competitiveness, and production-linked incentive (PLI) schemes is essential. Strong Rules of Origin, trade facilitation reforms, export diversification, domestic manufacturing capacity and integration into GVCs should complement future FTAs. Continuous monitoring of FTA outcomes and periodic review mechanisms are equally important.

Future Scenario

India's future trade strategy is expected to become more selective, focusing on high-quality, balanced and mutually beneficial FTAs that support manufacturing, technology partnerships and resilient supply chains. If supported by domestic reforms under initiatives such as Make in India, Atmanirbhar Bharat, the National Logistics Policy and PM Gati Shakti, FTAs can become powerful instruments for export-led growth rather than merely expanding imports. The success of India's trade diplomacy will ultimately depend not only on negotiating better agreements but also on strengthening domestic industrial competitiveness and global value chain integration.