India’s recent free trade agreements with the European Union, the United Kingdom, and Australia mark a decisive shift away from inward-looking trade policy. After years of tariff protection and cautious engagement, New Delhi is signalling that exports — especially labour-intensive manufacturing — are back at the centre of its growth strategy. The agreements open access to some of the world’s largest consumer markets, but whether this translates into sustained export gains will depend less on signatures and more on domestic follow-through.
Why the EU and UK deals matter
Together, the EU and the UK account for nearly 30% of global imports of low-skill manufactured goods such as apparel, footwear, and assembled electronics. Preferential access to these markets means zero-duty entry into a combined market worth around $3.5 trillion.
Until now, Indian exporters competed at a structural disadvantage. Countries like Bangladesh enjoyed zero-duty access to Europe, while Vietnam benefited from an EU FTA since 2020. Indian firms, by contrast, faced tariffs of 10–12% on apparel and up to 17% on footwear — margins that often determine order allocation. The removal of these tariffs closes a long-standing gap and restores competitive parity.
Changing how global firms view India
Beyond tariffs, FTAs send a powerful signal of policy stability. For multinational firms looking to diversify supply chains away from China, India becomes more credible as a long-term manufacturing base for European markets.
The “China-plus-one” logic has now widened into “Vietnam-plus-one” and “Bangladesh-plus-one”. India’s large workforce gives it a natural advantage, yet its export performance has lagged. Estimates suggest India exports around 18 percentage points below its potential in low-skill manufacturing to Europe — equivalent to nearly $160 billion in untapped annual exports. FTAs reopen this opportunity, but do not automatically deliver it.
Standards, not tariffs, are the real gatekeepers
The first major constraint lies outside tariff schedules. As highlighted by the World Development Report, non-tariff measures — product safety, environmental norms, and technical standards — now affect nearly 90% of global trade.
For Indian exporters, the risk is reputational as much as financial. Repeated instances of non-compliance by individual firms in pharmaceuticals, seafood, or agriculture have triggered inspections and bans that hurt entire sectors. In tightly regulated markets like Europe, one bad shipment can shut doors for all.
This places responsibility not only on the state but also on industry associations. Self-regulation, shared standards, and collective discipline are essential. Government support through testing infrastructure helps, but rejection at an Indian port is far less costly than rejection in Rotterdam or London.
Why trade complexity undermines credibility
India’s second challenge is the sheer complexity of its trade regime. Complexity raises costs, invites discretion, and fuels disputes. While the UK’s tariff schedule under the FTA has just three broad categories, India’s schedules run into dozens, layered with exceptions and conditions.
The problem is not theoretical. The Volkswagen import dispute — involving alleged misclassification of auto parts — illustrates how ambiguous tariff design creates conflict, regardless of intent. Similar risks arise in the EU deal, where wine tariffs are cut sharply but only above a price threshold, leaving customs officials to police valuations at the border.
Experience with GST suggests that excessive differentiation eventually gives way to rationalisation — but only after years of friction. In trade, such delays directly erode export competitiveness. Simplicity is not cosmetic; it is structural.
Market access without cheap inputs is not enough
FTAs open export markets, but competitiveness depends equally on access to affordable inputs, machinery, and technology. This is governed by India’s most-favoured-nation (MFN) tariff regime, not FTA schedules.
Many capital goods reach zero duty only after long phase-outs, while some of the best equipment comes from countries with which India has no trade agreement. As the Economic Survey has noted, protection raises economy-wide costs, slows upgrading, and weakens export potential. FTAs cannot substitute for low, uniform tariffs. If strategic sectors need support, subsidies are a more transparent tool than hidden protection.
The risk of backsliding after signing
India’s credibility problem does not end with negotiation. Past experience shows that commitments are sometimes diluted after signing, as domestic lobbies seek protection through anti-dumping duties or quality-control orders.
Research by economists Abhishek Anand and Naveen Thomas shows how such measures restricted man-made fibre imports from Indonesia despite an FTA, raising input costs and weakening garment exports. While some of these controls have since been withdrawn, the underlying mindset persists. Protecting upstream producers often harms downstream exporters — precisely the firms FTAs are meant to support.
The real metric of success
Negotiating FTAs is politically visible; delivering export growth is administratively demanding. Recent reforms — labour codes, GST rationalisation, renewable energy expansion, and deregulation efforts — move in the right direction. Yet high input costs, especially power and credit, remain binding constraints.
Ultimately, India’s trade reset will be judged by one outcome alone: sustained gains in global market share. The opportunity created by FTAs is real and large. Realising it will require credibility — built through standards compliance, regulatory simplicity, competitive inputs, and the discipline to honour trade commitments long after the signing ceremonies are over.
What to note for Prelims?
- India–EU, India–UK, and India–Australia FTAs
- Non-tariff measures (NTMs) in global trade
- MFN tariff regime
- China-plus-one strategy
What to note for Mains?
- Limits of FTAs without domestic reforms
- Role of standards and compliance in exports
- Trade complexity and regulatory credibility
- Balancing protection and export competitiveness
