It's not so good(s)! India has trade gap with 5 of 7 key FTA partners

India has run a merchandise trade deficit with five of the seven trade partners including two blocs it has free trade agreements (FTAs) with, ever since the pacts came into force, an ET analysis has shown. These trade partners collectively accounted for nearly 37% of India's total trade deficit in FY25.

India has since 2021 entered into trade pacts with Mauritius, the UAE, European Free Trade Association (EFTA) and Australia. Its trade deficit with the UAE has expanded since 2022, but that with Australia narrowed. While the pact with the four-nation EFTA is expected to come into force in October, the trade gap with the grouping reduced in 2024-25 from the previous fiscal year. With Mauritius, India has a small surplus.

In comparison, the deficit with partners India signed trade pacts with in the 2000s continued to widen, barring the South Asian Free Trade Area (Safta) where it is a surplus. Notably, the deficit with the 10-nation Asean bloc ballooned to $45.2 billion in FY25 from $25.8 billion in FY22 and $21.8 billion in FY19. Deficits with Japan and South Korea also widened.

A government official said the utilisation of India's new trade deals was higher than that of the old ones and that efforts were ongoing to maintain balanced trade.

"A review of the trade pacts with Asean and Korea is underway," said another official, adding: "However, the Asean is stonewalling the review and we are trying to assess why the utilisation of the deal is low."

The Asean-India Trade in Goods Agreement came into effect in 2010. India's goods exports to the Asean shrank 5.4% on-year in FY25 to $38.96 billion, while imports rose 5.6% to $84.16 billion.

India continues to maintain a trade surplus with South Asia under the 21-year-old Safta. But this surplus has shrunk between FY25 and FY22.

Overall, India's reliance on its FTA partners has grown between FY19 and FY25. Imports from all FTA countries and regions increased during this period, while exports growth was limited to a few.

These partners now account for 28.1% of India's exports and 29% of its imports.

As per an analysis done by the commerce and industry ministry, the number of preferential certificates of origin issued by India under FTAs with the UAE and Australia rose 24.7% and 19%, respectively, last fiscal year.

The analysis assumes significance as the utilisation rates under trade pacts with Korea, Japan and Asean have been estimated between 4% and 25% in many products. The preferential certificates of origin enable exporters to claim tariff benefits under free trade pacts.