India’s trade strategy: Moving beyond FTAs

For decades, trade policy was mostly about lowering tariffs and signing free trade agreements (FTAs). Today, however, the global economy is being reshaped not only by tariffs but also by supply chains, critical minerals, technology partnerships, and geopolitical considerations. The era when countries traded simply because they were economically efficient is giving way to an era in which they trade with those they trust. The fact that India has secured multiple FTAs and Comprehensive Economic Partnership Agreements (CEPAs) with important trading partners, such as the United Arab Emirates (UAE), Australia, and the EFTA (European Free Trade Association) bloc, is highly commendable. Nevertheless, it is high time we push ourselves to the next level and adopt a more dynamic, resilient, and sustainable strategy beyond securing FTAs.

India’s trade policy is entering a new phase. While FTAs will continue to remain an important instrument for expanding market access, they are no longer sufficient in themselves. The real challenge lies in embedding Indian firms into global value chains, securing access to critical inputs, and building trusted partnerships in emerging technologies. Signing FTAs is only the first step in moving towards a resilient trade strategy.

Currently, India’s FTA utilisation rate hovers around 25% compared to 70-80% in developed economies. Further, data suggests that India’s imports tend to grow faster than exports after the signing of FTAs, due to the nature of our tariff structures vis-à-vis trading partners. This implies that India’s FTA partners tend to benefit more than India. One of the major underlying causes of the low utilisation rates of FTAs is non-tariff barriers, such as sanitary and phytosanitary measures and stringent standards, to name a few. The complex ‘rules-of-origin’ make it cumbersome for exporters, thereby increasing compliance costs. Although steps are being taken to resolve these issues, there is a long way to go.


Therefore, the urgent step required is to bring about a substantial improvement in the FTA utilisation rates. Raising awareness among exporters at the ground level is critical. The dissemination of information on the nitty-gritties of FTAs is imperative to improving utilisation rates. Micro, small, and medium enterprises (MSMEs) tend to get left out of the race due to a lack of awareness. Bringing MSMEs into the picture can substantially improve the utilisation rates. Considering that India has negotiated substantial tariff cuts for textiles, leathers, and pharmaceuticals, trade policy must focus on ensuring that the quality and regulatory standards align with the partner countries.

Secondly, India’s export baskets are showing improvement in terms of the contribution of high-value manufacturing, such as electronics. Future negotiations with countries must focus on securing supply chains for specific sectors rather than a blanket approach to trade. For each product, a maximum dependence threshold (e.g. no country should account for more than X% of imports) could be set. India should prioritise “production partnerships” over “market access partnerships”. The lesson from recent disruptions is that access to production networks matters more than tariff preferences. This ensures that trade policy moves from reactive crisis management to preventive risk management.

Subsequently, India must try to build overseas production networks in sectors such as critical minerals, electronics, and textiles, to name a few. Rather than focusing on exporting from India, the government must encourage Indian firms to establish production hubs in friendly countries. India is already witnessing an increase in outward FDI (foreign direct investment) flows in recent years. Often, rising OFDI flows are viewed with concern in India due to their impact on the balance of payments and the dominance of offshore financial centers in receiving them. A concerted push by the government in encouraging genuine OFDI flows may help in overcoming future supply chain disruptions. Public sector undertakings (PSUs) taking the lead would encourage other industry players to follow. An associated issue is energy security. Recent agreements that India has signed lack focus on ensuring energy security. Creating strategic reserves not just in petroleum or natural gas but also critical minerals is the need of the hour. The lack of tangible results on this is worrying. Using overseas production networks in this regard may produce quick results, as building domestic strategic reserves takes time.

The experiences of Taiwan and China illustrate that economic influence is derived less from the number of FTAs signed and more from a country’s position within global production networks. In both cases, competitiveness, technological capability, and production ecosystems proved more consequential than tariff preferences alone. India should learn lessons from these experiences as it seeks to redefine its trade strategy in an era increasingly shaped by supply-chain security and economic resilience.

Amal Krishnan is an Assistant Professor at Christ University and Badri Narayanan Gopalakrishnan is a Fellow, NITI Aayog. Views are personal