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From Protectionism to Partnerships: India's Shifting FTA Strategy
- THE GEOSTRATA
- 2 hours ago
- 6 min read
India's trade policy since independence has been rooted in self-sufficiency and protectionism, which makes India's trade remarkably different. The first three and a half decades after independence were governed by very high tariffs, tight import restrictions, and a complex 'licence raj' system to encourage young Indian industries, while protecting many sectors.
Illustration by The Geostrata
This self-sufficiency encouraged domestic manufacturing, but at the same time, it had the effect of limiting export growth and integrating India into the global economy. At the beginning of 1991, the Indian economy undertook landmark reforms that began a shift towards a more open and market-oriented economy that was gradual but irreversible.
This transition has been non-linear, characterized by boom and bust, where India has moved through phases of hesitation, strategic restart, and now momentum. Therefore, India's Free Trade Agreements represent a journey of a country learning to balance its ambitions for global trade leadership with the responsibility of ensuring that it protects its massive and often vulnerable domestic sectors.
PHASE 1 (THE CAUTIOUS FIRST STEPS)
India's first venture into trade liberalization, defined by caution. As trade worldwide was increasingly governed by the World Trade Organization (WTO) and regional blocs started to form, India's only reference point was Preferential Trading Agreements (PTAs) with neighbouring countries.
The "Bangkok Agreement" (1975) was the first example of this, and before this, the Indo-Sri Lanka FTA, signed in 1998, was India's first comprehensive Free Trade Agreement (FTAs).
In this agreement, India was able to use a working model of negotiations, based on a careful, asymmetric model. India had given Sri Lanka much broader market access, while it created a pragmatic time frame to liberalize its goods. A significant feature of the agreement was the use of the "negative list"; this was a list of sensitive goods such as garments and paper, where no tariff cuts were applicable.
With a selective economic liberalization process, the two countries, India and Sri Lanka, were able to gradually open up economic trade, but at the same time protect domestic industries from abrupt disruption. This economic liberalization approach became a central tenet of India's FTAs moving forward.
PHASE 2 ("LOOK EAST" AND COMPREHENSIVE AGREEMENTS)
By the mid-2000s, India's strategic approach had transitioned from a cautious bilateralism to a broader and regionally driven perspective, in parallel with its "Look East" policy. The signing of the ASEAN-India Framework Agreement in 2003 signalled a significant step toward a deeper orientation toward regional integration.
Subsequently, India followed with comprehensive agreements with specific countries, including the 2010 India-South Korea Comprehensive Economic Partnership Agreement (CEPA). These treaties went well beyond just the liberalization of tariffs on goods and included coverage of services, investment provisions, and intellectual property rights.
However, the outcomes were mixed. While they were able to increase total (bilateral) levels of the trade volume, they both produced a widening trade deficit for India. For example, India's trade deficit with the Association of Southeast Asian Nations (ASEAN) had increased significantly since the FTA with ASEAN in 2010, raising concerns among some that India was becoming a market for foreign goods without any increase in its own exports. This experience led to a period of self-examination and skepticism.
PHASE 3 (THE DEFENSIVE STANCE AND A SHIFT TOWARD SELF-CONTAINMENT)
Driven by a desire to focus on "national interests" and to remedy the perceived failures of some of the previous agreements, India took a conservative and defensive posture toward free trade agreements (FTAs).
During this phase, India conducted an extensive review of its FTAs with ASEAN, Japan and South Korea to address existing trade deficits and ineffective dispute settlement processes. The defensive posture culminated in India’s dramatic withdrawal from the Regional Comprehensive Economic Partnership (RCEP) in 2019. This decision to withdraw was a result of a number of concerns, including:
Chinese Dumping: Policymakers expressed fears that RCEP would open the floodgates to cheap imports from China and wreak havoc on the Indian market (evidenced by what the government termed "lopsided" trade deficits with RCEP member countries), especially in cheap electronics and steel, amongst other sectors, that may influence the domestic industry.
Insufficient Safeguards: India expressed concerns regarding insufficient provisions to safeguard vulnerable sectors, especially the politically sensitive dairy and agriculture sector, from potential foreign competition.
Trade Deficits: The Indian government expressed concerns that RCEP would replicate the same disadvantages of RCEP, and exaggerate India's trade deficit vis-à-vis other member countries in the Agreement.
Following this withdrawal, India launched a version of "Aatmanirbhar Bharat" (Self-Reliant India) Movement and launched the Production-Linked Incentive (PLI) schemes. This represents a strategic turn back to a variant of selective protectionism, with the emphasis on supporting domestic manufacturing and import substitution in key sectors in particular.
PHASE 4 (REURGENCE, STRATEGIC ENGAGEMENT)
As the impact of the COVID-19 pandemic unfolded and supply chains underwent dramatic shifts across the globe, India made a dramatic and significant turnaround with respect to its free trade agreement (FTA) policy. With new stimulus and a new, more sophisticated strategy, the government engaged in some deep soul-searching (albeit publicly) about FTAs. The reasons for this change are quite obvious:
Geopolitical Realignment: Strengthened economic links with friendly countries would help fulfill a shared common objective: reduce dependence on a single supply chain (e.g., China).
Market Diversification: FTAs have developed into a tool that India has embraced to promote its overseas trade with preferential access to important markets in the West and the Gulf region for Indian origin products.
Greater Engagement on Investment and Jobs: The new strategy takes the original idea a big step further from just the trade issue to securing a firm government commitment to securing investment, jobs and technology transfer.
This new approach was rewarded immediately with the completion of landmark agreements. As India's trade diplomacy has recently entered a new phase characterized by strategic outreach, speed, and ambition, 97% of Indian goods now have duty-free access to a vital Middle Eastern market direct result of the 2022 Comprehensive Economic Partnership Agreement (CEPA), which was signed in a record-breaking 88 days.
In the same year, India signed the India–Australia Economic Cooperation and Trade Agreement (ECTA), reduced tariffs on all Australian tariff lines and increased Indian exports of clothing, textiles, and jewellery and gems.
While more recently, a historic milestone was reached with the India–EFTA (European Free Trade Association) Trade and Economic Partnership Agreement (TEPA) with Switzerland, Norway, Iceland, and Liechtenstein. When taken as a whole, these agreements highlight India's changing trade approach, which blends quick talks with sustained business alliances.
Today's FTAs are vastly different from earlier FTAs. There are additional chapters assigned to newer areas such as digital trade, labour, and environment, which fit India's regulatory arrangement with global standards. In addition, modern FTAs include exclusion lists, by design from deliberated negotiations, and phased tariff concessions which aim to compensate for the need to liberalize, but accommodate India's domestic and emerging industry.
TACKLING THE CHALLENGES (LOOKING FORWARD)
Despite this renewed momentum, the path ahead in India's FTA experience may still be challenging as the use of free trade agreements (FTAs) in India is still low, especially among MSMEs, who frequently miss out on tariff concessions because of complicated rules of origin, onerous compliance requirements, and a lack of awareness.
Non-tariff barriers (NTBs) like strict quality standards, complicated customs paperwork, and costly certification procedures continue to undercut competitiveness even when Indian goods benefit from zero tariffs under free trade agreements (FTAs), particularly in markets like the EU and Japan.
Furthermore, it is still difficult to guarantee inclusivity in these trade frameworks because local communities and small businesses usually find it difficult to obtain the advantages that big corporations easily enjoy. If India's free trade agreements are to convert diplomatic victories into real, widespread economic benefits, these systemic loopholes need to be addressed.
CONCLUSION (SHAPING INDIA'S TRADE DESTINY)
India’s trade diplomacy is entering a decisive stage as ambitious new agreements are signed with developed economies. The recently ratified India-UK FTA 2025 illustrates how New Delhi has tried to maintain a careful balance between providing market access and trying to have safeguard provisions within sectors.
Likewise, India's pursuit of a broad-based trade and investment agreement (BTIA) with the EU continues to illustrate its intention to anchor itself more firmly, while embracing high standards in regulatory practices on labour, the environment, and digital trade. This highlights the Indian government's willingness to transition from a cautious player to an active shaper of global trade rules.
India has taken a multifaceted approach aimed at enhancing awareness, streamlining compliance, and fortifying institutions in order to tackle the inherent difficulties of executing a variety of trade agreements. Together, this array of strategies suggests a new and sophisticated era of trade diplomacy for India.
Signing agreements is only the first step in ensuring that businesses can effectively utilize them in practice will enhance India’s presence. By combining strategic market access with some institutional reforms, India aims to position trade as a means to attract investment, create jobs and bolster its global leadership in an increasingly dynamic world economy.
BY MUSKAN GUPTA
TEAM GEOSTRATA