India appears set to conclude a Free Trade Agreement (FTA) with New Zealand, while negotiations continue with Oman, Chile, Israel, Canada, the EU, the UK and others. The sheer number and pace of these talks raise a basic question: why is India expending so much political and administrative capital on trade agreements that have, historically, delivered limited economic gains? The answer lies less in trade economics and more in geopolitics and strategic positioning.
Why India’s FTA Push Looks Unusually Intense
Over the last few years, India has moved simultaneously on broad regional agreements, such as with the European Free Trade Association (EFTA), and on bilateral deals with countries that are themselves part of other regional blocs. This acceleration marks a clear shift from the cautious approach India adopted after disappointing outcomes from earlier FTAs, especially the ASEAN agreement.
At one level, the push reflects India’s desire to remain embedded in global trade networks at a time when protectionism and fragmentation are rising worldwide. At another, it signals a rethinking of what FTAs are meant to achieve.
What Trade Theory Says About FTAs
Trade theory and empirical evidence suggest that FTAs rarely create entirely new trade flows. Instead, they tend to formalise and regulate trade relationships that already involve substantial bilateral exchange. Each agreement inevitably produces winners, such as exporters who gain market access, and losers, such as domestic firms exposed to cheaper imports.
Unless the political influence of these groups balances out, FTAs often stall, are diluted, or underperform. This was evident in India’s ASEAN FTA, where domestic resistance and limited reciprocal gains constrained outcomes. In practice, FTAs often codify existing trade patterns rather than transform them.
India’s Experience: Limited Economic Returns
Data from India’s major FTAs reinforce this point. For agreements with ASEAN, Japan and South Korea, India’s share of exports to these regions has either remained flat or declined in the years after implementation. Intra-RTA trade has not risen relative to India’s global trade, undermining the core economic justification for preferential agreements.
Several factors explain this outcome:
- Most agreements focused on commodity trade, where partner-country tariffs were already low.
- Partner economies often gained more, sometimes through indirect imports of Chinese goods routed via RTA members.
- India’s comparative advantage in services remained largely untapped.
Despite having around 18 RTAs or PTAs in force, only eight include services chapters, and effective implementation has been limited.
Why Services and Investment Matter More Than Goods
For India, the real potential gains from FTAs lie in services and investment, not merchandise trade. Yet many partner countries, especially in ASEAN, have resisted meaningful liberalisation in services, such as professional mobility and digital trade. Singapore remains a partial exception, and South Korea shows some progress, but overall outcomes have been modest.
This mismatch has prompted India to rethink the purpose of FTAs: not as engines of export growth, but as platforms for deeper cooperation in areas where the World Trade Organisation (WTO) has struggled.
FTAs as Strategic and Diplomatic Instruments
In an increasingly unstable global order, FTAs have become tools of foreign policy. With the weakening of the WTO, the retreat of the US from multilateral trade leadership, and sharpening US–China rivalry, countries are using bilateral and regional agreements as forms of strategic insurance.
For India, several FTAs are clearly driven by geopolitical considerations:
- The ASEAN FTA aligned with broader Indo-Pacific and QUAD objectives.
- The agreement with Australia reinforced political and security ties more than economic complementarities.
- Recent deals with the UAE reflect a clearer services-and-investment logic tied to energy, finance and diaspora links.
Negotiations with the EU and the UK are similarly shaped by strategic calculations, even if their economic payoff remains uncertain.
Shifting Global Order and India’s Calculus
The prospect of a new “Big Two” world dominated by the US and China has injected uncertainty into existing alliances such as the QUAD. In this context, India’s rapid expansion of RTAs reflects a hedging strategy: building multiple economic and political linkages to avoid overdependence on any single bloc.
Seen this way, even the renewed logic of an India–Russia FTA fits into a broader pattern of diversifying strategic options in a fragmented global system.
From Commerce to Diplomacy: Who Is Driving FTAs?
A striking feature of India’s recent trade policy is the growing role of strategic considerations over pure economic logic. Increasingly, RTAs are shaped less by export potential and more by foreign policy priorities. This has shifted influence from the Commerce Ministry to the Ministry of External Affairs.
In the emerging world order, FTAs are evolving from instruments of trade liberalisation into political safety nets. For India, the question is no longer how much trade an agreement creates, but what strategic space it helps secure.
What to Note for Prelims?
- India has around 18 RTAs/PTAs in force.
- Only eight include services agreements.
- Major FTAs (ASEAN, Japan, Korea) show limited post-FTA trade expansion.
- FTAs increasingly include WTO-plus areas: services, investment, standards.
What to Note for Mains?
- Critically examine why India’s FTAs have delivered limited economic gains.
- Analyse the shift from economic to strategic motivations behind trade agreements.
- Discuss the role of FTAs in a weakening multilateral trade order.
- Evaluate whether India’s FTA strategy aligns with its comparative advantage in services.
