World MSME Day: What India’s recent FTAs and trade deals mean for MSMEs

In recent years, India has signed trade agreements with countries such as the UK, the EU, and New Zealand, and talks are ongoing with the US regarding a potential deal. While these trade pacts have opened markets and boosted exports of micro, small, and medium enterprises (MSMEs), experts say they have also brought stiffer competition and compliance burdens. Results are uneven as some sectors gained from global value chains, while others still face cost pressures and low FTA (free trade agreement) awareness, say industry experts and stakeholders. As India signs more deals, experts want future FTAs designed to help MSMEs compete globally and at home.

Since 2021, India has signed nine FTAs covering 38 countries. The run started with Mauritius, followed by the UAE CEPA (Comprehensive Economic Partnership Agreement) in May 2022 and Australia ECTA (Economic Cooperation and Trade Agreement) in December 2022. Then India signed the EFTA TEPA on March 10, 2024, which took effect on October 1, 2025. The UK CETA was signed in July 2025 and the Oman CEPA in December 2025. New Zealand’s FTA was announced on December 22, 2025, and the EU FTA on January 27, 2026. An interim framework with the US was delivered on February 7, 2026.

Gautam Khattar, Principal, Price Waterhouse & Co, says India’s recent FTAs have significantly strengthened opportunities for MSMEs by reducing tariff barriers, improving their global price competitiveness, and facilitating greater integration into international value chains. “This is reflected in the sharp rise in MSME exports and the growing number of exporting enterprises, underlining their critical role in India’s trade ecosystem. Government data shows the same,” adds Khattar.


According to government data, MSME exports increased from Rs 3.95 lakh crore in 2020-21 to Rs 12.39 lakh crore in 2024-25, while the number of exporting MSMEs rose from 52,849 to 173,350 during the same period. MSMEs also accounted for around 45.7% of India’s exports in 2023-24.

Khattar says modern FTAs cover goods, services, standards, mutual recognition, digital trade, investment, and institutional cooperation, and if implemented well, they support MSMEs. He points to India-UAE CEPA and India-Australia ECTA, which boosted exports in MSME-heavy sectors like textiles, engineering goods, and processed food. UAE CEPA offers preferential access on 97% of tariff lines, covering 99% of Indian export value. Australia ECTA provides 100% tariff line access with 79% export utilisation and 84% import utilisation. Broader pacts like India-EFTA TEPA extend into services, standards, and investment.

“However, these benefits are not automatic. Larger, export-ready firms are better positioned to leverage FTAs, while many MSMEs continue to face challenges around rules of origin, compliance, and documentation. As a result, while the overall impact has been positive, it remains uneven and contingent on awareness, capability, and integration with formal trade channels,” says Khattar.

Bharat Garg, President, Federation of All India Aluminium Utensils Manufacturers (FAIAUM), says that while India’s recent FTAs have, in principle, opened up greater market access, the gains have yet to meaningfully reach MSMEs, particularly those in the downstream aluminium manufacturing sector.

“The challenges are twofold. First, the competitiveness of downstream aluminium MSMEs is constrained by the high cost of their primary input. Domestic downstream manufacturers procure primary aluminium at import-parity prices, which significantly raises their production costs. As a result, even where FTAs provide preferential tariff access, Indian MSMEs struggle to compete in export markets due to their higher price points,” says Garg.

Shashi Mathews, Partner at CMS INDUSLAW, says that the track record of these agreements is genuinely mixed. Agreements have been around for a while, and the recent ones still await ratification and implementation, he adds. But some, like the UAE CEPA, have boosted exports. Reports show bilateral merchandise trade nearly doubled from $43.3 billion to over $100 billion in three years, with more than 54,000 preferential Certificates of Origin issued in the first 11 months alone. That shows serious impact.

“But overall, the MSME sector has not been able to capitalise much on the benefits due to low awareness, perception of complex rules and heavy documentation holding back some of these exporters. While market access is a big boon, the quality of Indian products has left a dent, especially from an MSME perspective, and that needs to be fixed,” says Mathews.

Darshana Thakkar, National President (Entrepreneurship Development Council), Women’s Indian Chamber of Commerce and Industry (WICCI), too, believes that the impact of FTAs has been uneven. “While export-ready MSMEs with strong compliance systems have leveraged FTAs to expand their global footprint, a large segment of MSMEs remains unaware of the specifics,” adds Thakkar.

Making FTAs work for MSMEs
Khattar says future FTAs need an explicit MSME utilisation focus. That means mapping MSME-heavy sectors early, aligning concessions with India’s export strengths, and linking to districts as export hubs. According to him, simplifying rules of origin is key, since documentation and traceability often erase duty benefits for MSMEs. For example, a small textile exporter may qualify for preferential duty but must still trace yarn and fabric origins, keep production records, and collect supplier declarations. For smaller firms, that burden can outweigh the duty advantage, he says.

“The future FTAs should include practical compliance tools such as simplified checklists, standardised declarations, and easier processes for low-risk exporters, while maintaining safeguards like CAROTAR. Further, future FTAs may also deal more effectively with non-tariff barriers. For many MSMEs, the bigger challenge is not customs duty but testing, certification, labelling, packaging, sustainability requirements and regulatory approvals in the destination market,” says FAIAUM’s Garg.

“Stronger mutual recognition arrangements, regulatory cooperation, faster approvals and dedicated SPS or TBT helpdesks can reduce cost and time for exporters. Finally, FTA implementation may also be linked with domestic support on export finance, quality testing infrastructure, logistics, branding and digital trade enablement, because market access alone cannot address competitiveness gaps,” Garg says.

In addition, future FTAs must better protect domestic MSMEs by rationalising duties across the aluminium value chain, Garg says. Cutting the cost of primary aluminium would make Indian value-added products more competitive and help downstream MSMEs use preferential market access. He calls for balanced tariffs and stronger safeguards against unfair imports to stop duty-free finished goods from hurting domestic manufacturing. Aligning trade and industrial policy, he adds, is key for MSMEs to leverage FTAs for exports, competitiveness, and sustainable growth.

Mathews says future FTAs should incorporate simplified, MSME-friendly rules of origin within the agreement itself, rather than introducing such provisions later as a corrective measure. “Rules of origin verification for MSMEs with globalised supply chains is technically and financially burdensome, often exceeding the tariff-saving benefit itself. We should have an export promotion council focusing just on MSMEs with a target to iron out issues for them not only prior to implementation but from the negotiation stage itself,” says Mathews.

Thakkar says future FTAs need a dedicated MSME framework rather than relying on benefits to trickle down. She identifies three priorities: simplify FTA provisions with sector-specific guidance; strengthening support for certifications, testing, quality standards; and digital export documentation, especially for first-time exporters.

"FTAs are a good starting point for export promotion. However, to be able to make the best out of current FTAs, one requires accompanying internal reforms to make the MSMEs more competitive on the global scale. For example, we need to revisit the over-time regulation in the current labour laws to help reduce MSME costs relative to other firms in Vietnam and other countries," says Shekhar Tomar, Professor, Indian School of Business.