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In recent years, India has been actively pursuing Free Trade Agreements (FTAs) with various countries and trade blocs. So far, it has signed around 13 FTAs, varying widely in their scope and objectives. However, many observers remain skeptical about their effectiveness. Between 2017 and 2022, India’s exports to FTA partners grew by 31%, while imports surged by 82%. Furthermore, India’s FTA utilization rate remains low at just 25%, compared to 70–80% in developed countries (RN Choudhury, East Asia Forum, 19 September 2023). This underlines the importance of critically evaluating the upcoming FTAs India is set to sign.

Current Global Trade Landscape

The global trade environment has been undergoing major changes, especially since the administration of former U.S. President Donald Trump imposed a 25% tariff hike on imports from several countries. Trump argued that the U.S., with its traditionally open economy and low import tariffs, had been disadvantaged by other nations imposing higher duties on American goods. As a result, U.S. exports suffered, contributing to a chronic trade deficit and undermining its industrial base. To counter this, the U.S. adopted a policy of reciprocal tariffs.

Countries like China responded with equally high tariffs on American goods, leading to a near-collapse in parts of the global trading system. In this climate, many nations began seeking alternatives to maintain and grow their production and export sectors. One such strategy was forming regional trade blocs and negotiating FTAs to safeguard their economic interests.

India’s motivation behind FTAs

Following its FTA with the UK, India is now in talks to sign similar agreements with the U.S. and the EU. The primary goal is to stimulate economic growth through increased exports.

This effort comes at a time when domestic consumption expenditure has plateaued after an initial post-COVID surge driven by pent-up demand. Real incomes for large sections of the population have remained stagnant or even declined. Moreover, despite high profit margins, private sector investment has not picked up significantly in recent years. This has forced the government to step in with substantial capital expenditure to drive growth. In this context, FTAs are seen as a tool to revitalize India’s export sector.

FTAs alone may not be enough

However, India’s past experience with FTAs has been mixed. For instance, intra-regional trade under the South Asian Free Trade Area (SAFTA) remains between just 5% and 7% of global trade—one of the lowest among regional trade blocs. In comparison, intra-EU trade accounts for 45%, ASEAN around 22%, and NAFTA (now USMCA) about 25%.

A study cited by Sasank Patel in The Hindu (24 June) estimates that South Asia’s trade potential could have reached $172 billion by 2020, suggesting that over 86% remains untapped. Even trade within SAARC countries is far from optimal. Despite SAFTA, regional trade is not truly “free.” Inefficient trade regulations and a volatile political climate significantly increase costs. For example, trading within South Asia costs an estimated 114% of the value of goods—far higher than trading with distant countries. It is reportedly 20% more expensive for an Indian firm to trade with Pakistan than with Brazil, which is 22 times farther away.

The role of political will

Political tensions and mutual distrust among SAARC nations continue to impede regional trade. The lack of trust and unresolved conflicts weaken the implementation of agreements like SAFTA. For FTAs to be truly effective, strong political will and regional cooperation are essential.

Conclusion

India’s strategy of signing multiple FTAs reflects a clear intent to boost exports and economic growth. However, the success of these agreements depends not just on their number or scope, but also on how effectively they are utilized, implemented, and supported by political and institutional mechanisms. Without addressing these structural and political barriers, FTAs alone may not be sufficient to unlock their full potential.