Major Trade Agreements of India: Evolution, Objectives, Strategic Importance, and Challenges
- GS Paper 2: Foreign policy, international economic relations, trade agreements
- GS Paper 3: Indian economy, international trade, manufacturing, exports
- Prelims: Terms (FTA, CEPA, CECA), Articles related to trade policy, partner countries
- Useful for Mains answer writing and essay topics on India’s economic diplomacy.
Introduction
India is rapidly emerging as a key global trade power, leveraging its large market, expanding manufacturing base, and strategic geopolitical positioning. In today’s era of globalization, trade agreements have become vital tools for countries to integrate competitively with the global economy, bypass protectionism, and access new markets. India’s approach has evolved from a relatively protectionist stance pre-1991 towards proactive engagement through bilateral and multilateral trade agreements. These agreements facilitate India’s vision to become a resilient global hub while ensuring economic growth and strategic partnerships.
Types of Trade Agreements
Trade agreements vary based on scope and membership:
- Preferential Trade Agreement (PTA): Tariff concessions on select products between countries (e.g., India-MERCOSUR PTA).
- Free Trade Agreement (FTA): Comprehensive elimination or reduction of tariffs on most goods, sometimes extending to services and investments (e.g., India-ASEAN FTA).
- Comprehensive Economic Partnership Agreement (CEPA): Broader than FTAs, covering trade in goods, services, investments, intellectual property, and dispute resolution mechanisms (e.g., India-Japan CEPA).
- Comprehensive Economic Cooperation Agreement (CECA): Similar scope to CEPA with emphasis on economic cooperation (e.g., India-Singapore CECA).
Agreements may be bilateral (between two countries) or multilateral/regional (among multiple countries), influencing trade dynamics differently.
Evolution of India’s Trade Policy
India’s trade policy shift began significantly post-1991 economic liberalization, abandoning closed, protectionist policies. The reforms encouraged integration into the global economy, attracting foreign investment, and boosting exports.
Recent strategic thrusts include:
- Act East Policy: Strengthening economic and strategic ties with Southeast Asia and beyond.
- Indo-Pacific Role: Capitalizing on India’s geographic position to build partnerships in a stable, free maritime domain.
- WTO Membership: Although committed to WTO frameworks and reforms, India balances domestic interests with global trade norms.
These policy shifts propelled India towards active negotiation and signing of diversified and strategic trade agreements.
Major Trade Agreements of India
A. Bilateral Agreements
- India-Sri Lanka FTA (ISFTA)
- Operational since 2000, aims to promote bilateral trade by cutting tariffs on selected goods.
- Benefits Sri Lanka’s smaller economy while providing India market access.
- Issues include trade imbalance and limited utilization by SMEs.
- India-Nepal Treaty of Trade
- Provides duty-free access to Nepal for many exports and transit access for India.
- Strengthens socio-economic ties amidst geography and cultural proximity.
- India-Bhutan Trade & Transit Agreement
- Bilateral accord eliminating tariffs, facilitating trade and transit.
- Bhutan depends heavily on India for imports and exports, enhancing regional integration.
- India-Japan CEPA (2011)
- Covers goods, services, investment, and intellectual property rights.
- Eliminates tariffs on over 90% of Indian exports to Japan.
- Boosts sectors like automobiles, pharmaceuticals, and machinery.
- India-South Korea CEPA (2010)
- A comprehensive trade agreement promoting trade in goods and services.
- Provides better market access and cooperation in technology-intensive sectors.
- India-UAE CEPA (2022)
- Considered one of India’s most significant FTAs, enhancing access for Indian textiles, gems, and leather products.
- Supports India’s export ambitions and leverages UAE as a gateway to West Asia and Africa.
- India-Australia ECTA (2022)
- Covers goods, services, and investment with tariff removal on key sectors.
- Strategic for access to minerals and boosting Indian exports in pharma, textiles, and education.
B. Multilateral / Regional Agreements
- South Asian Free Trade Area (SAFTA)
- Among SAARC nations to promote intra-regional trade by tariff reduction since 2006.
- Challenges due to political tensions and non-tariff barriers persist.
- ASEAN-India FTA
- An extensive agreement covering goods (since 2010), services, and investments (expanded in 2014).
- Enhances trade with ASEAN’s 10 member states, though Indian trade deficit remains a concern.
- India-MERCOSUR PTA
- Preferential tariff reductions with South American Mercosur countries like Brazil, Argentina, Uruguay.
- Limited utilization due to operational and tariff barriers.
- BIMSTEC Economic Cooperation
- Grouping countries from South and Southeast Asia aimed at regional cooperation and economic integration.
- India plays a key role in fostering connectivity and trade facilitation.
- RCEP Withdrawal
- India chose to withdraw from the Regional Comprehensive Economic Partnership (RCEP) in 2019 citing concerns over trade deficits and impact on domestic industries.
Key Agreements in Pipeline / Negotiations
- EU-India FTA negotiations are underway with focus on resolving issues like auto, steel, and climate-related standards.
- UK-India FTA signed in 2025, opening extensive tariff-free trade on goods and services; strategically important post-Brexit.
- GCC FTA Talks ongoing to unify Gulf economies with India’s trade interests.
- India-Canada CEPA Talks currently paused due to political and agricultural concerns.
Strategic Importance
Trade agreements help India:
- Integrate into global supply chains, securing inputs and markets.
- Enhance access to emerging and mature global markets, supporting export diversification.
- Promote flagship initiatives like Make in India and Atmanirbhar Bharat, encouraging domestic manufacturing and export growth.
- Build deeper economic and strategic ties in Indo-Pacific and West Asia, balancing geopolitical challenges.
Challenges & Concerns
- India’s trade deficits with some partners, notably ASEAN, raise concerns about domestic industry sustainability.
- Protectionist reflexes exist among sectors like agriculture and MSMEs fearing competition from imports.
- Non-tariff barriers and cumbersome standards pose hurdles to market access.
- Ensuring WTO compliance while pursuing aggressive bilateral/regional FTAs is complex.
- Geopolitical sensitivities influence pace and scope of agreements (example: withdrawal from RCEP).
Government Initiatives to Boost Trade
- Production Linked Incentive (PLI) Schemes: Strengthen manufacturing competitiveness in electronics, pharma, and other sectors.
- National Logistics Policy & PM-Gati Shakti: Infrastructure improvements reduce trade costs and time.
- Export Promotion Policies: Digitization, simplification, and export incentives under Foreign Trade Policy 2025.
- FTAs are being aligned with these broader economic and strategic goals to maximize benefits.
Way Forward
- Pursue a balanced FTA strategy, ensuring benefits while protecting critical sectors with strong rules of origin and anti-dumping safeguards.
- Enhance domestic competitiveness through investments in R&D, skill development, and infrastructure.
- Diversify global partnerships covering emerging and developed markets to mitigate geopolitical risks.
- Institutionalize continuous evaluation of FTAs and adapt policies to dynamic global trade environments.
Conclusion
India’s growing role in global trade is powered by strategic use of trade agreements that reflect an evolving economic and diplomatic posture. A forward-looking, strategic, and balanced approach towards trade agreements will help transform India into a resilient global economic hub, promoting prosperity and geopolitical stature in a complex global landscape.
FAQs on Major Trade Agreements of India
Q1. What are the different types of trade agreements India enters into?
India signs Preferential Trade Agreements (PTA), Free Trade Agreements (FTA), Comprehensive Economic Partnership Agreements (CEPA), and Comprehensive Economic Cooperation Agreements (CECA), either bilaterally or multilaterally.
Q2. Why did India withdraw from RCEP?
Concerns on trade imbalances, impact on domestic MSMEs and agriculture, and lack of adequate safeguards led India to withdraw in 2019.
Q3. Which recent major FTAs has India signed?
Key FTAs include India-UAE CEPA (2022) and India-Australia Economic Cooperation and Trade Agreement (ECTA) (2022).
Q4. How do trade agreements support ‘Make in India’?
They improve market access for Indian exports, integrate India into global supply chains, and attract investment into manufacturing.
Q5. What are the main challenges faced in India’s FTAs?
Trade deficits with partners, protecting domestic sectors, non-tariff barriers, and compliance with WTO rules.
