Abstract
Over the past three decades, India’s engagement with the global trading order has experienced a structural transformation. Following the economic liberalisation of July 1991 and India’s accession to the World Trade Organisation (WTO) on 1 January 1995, the trade-to-GDP ratio rose from approximately 15 per cent in 1990 to 27 per cent by 2000, later surpassing 50 per cent between 2011 and 2013, and stabilising at around 44.7 per cent in 2024. This progression reflects both a quantitative expansion of trade and a qualitative transition from a defensive, import-substitution model to an export-oriented strategy based on strategic partnerships.
In the 1990s and 2000s, India primarily engaged in trade diplomacy through multilateral institutions established under the Uruguay Round. However, the WTO’s central negotiating mechanism, the Doha Development Agenda, launched in November 2001, failed to deliver substantive outcomes. Repeated ministerial impasses, culminating in the collapse at Geneva in July 2008 over the Special Safeguard Mechanism for agricultural products, underscored the limitations of the multilateral liberalisation model in advancing India’s interests in services, pharmaceuticals, and manufacturing.
In response, India adopted a pragmatic, relationship-driven free trade agreement (FTA) strategy. During the 2010s, India concluded Comprehensive Economic Partnership Agreements (CEPAs) with Japan and South Korea and finalised the ASEAN Free Trade Agreement on Services and Investment. From 2022 onward, this strategy accelerated with major agreements involving the United Arab Emirates (CEPA, February 2022), Australia (ECTA, December 2022), and the European Free Trade Association (TEPA, March 2024). By 2025, India had signed or implemented 13 FTAs and 6 Preferential Trade Agreements with over 50 countries. Negotiations with the United Kingdom (finalised in May 2025), the European Union, and Canada are at advanced stages, and a CEPA with Oman was concluded in December 2025.
Three major geopolitical shocks accelerated this structural shift: the Trump administration’s dismantling of the WTO Appellate Body and implementation of aggressive tariff unilateralism (2017 to 2021), the COVID-19 pandemic’s exposure of supply chain vulnerabilities (2020 to 2022), and the Ukraine War’s division of global trade into aligned and non-aligned blocs (2022 to present). Each of these shocks reduced confidence in a solely WTO-based trading framework and heightened the perceived value of bilateral and plurilateral agreements with strategically aligned partners.
The WTO Era (1990s–2000s): Multilateralism and Defensive-Offensive Balances
India’s Accession and Early Engagement
India’s accession to the WTO on 1 January 1995 formalised the liberalisation trajectory initiated by the Rao-Singh reforms of July 1991. Prior to these reforms, India’s trade regime ranked among the most restrictive in the developing world. In 1990-91, the peak tariff rate reached 355 per cent, the simple average of all tariffs was 113 per cent, and the import-weighted average tariff stood at 87 per cent (WTO Trade Policy Review, 1998). By 1996-97, the import-weighted average tariff had declined to 24.6 per cent, representing one of the most rapid episodes of trade liberalisation.
The removal of quantitative restrictions occurred concurrently with tariff reductions. Under GATT Article XVIII: B, India had maintained quantitative restrictions on approximately 1,400 tariff items. However, a successful challenge by the United States before the WTO Dispute Settlement Body required India to expedite its elimination. By April 2001, quantitative restrictions on all previously restricted items had been lifted, rendering almost all goods freely importable, subject to applicable tariffs. The simple average most-favoured-nation (MFN) tariff rate continued to decline, reaching 15.1 per cent by 2006–07, 12 per cent by 2010-11, and then to 12 per cent by 2010-11.
India also harmonised its regulatory framework with WTO disciplines, including the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the Sanitary and Phytosanitary (SPS) Agreement, and the Technical Barriers to Trade (TBT) Agreement. The 1997 WTO Financial Services Agreement obligated India to allow the establishment of 12 new foreign bank branches each year. These commitments generated systemic reform pressures and enhanced the credibility of India’s investment environment for foreign capital.
India as a Defensive-Offensive Actor
During this period, India’s approach within the WTO exhibited a distinctive dual character. In agriculture and manufacturing, India adopted a defensive stance, aiming to preserve policy space through Special and Differential Treatment (S&D) provisions, non-agricultural market access (NAMA) flexibilities, and the maintenance of food security safeguards. Conversely, in commercial services and the Mode 4 movement of natural persons, India pursued an offensive strategy, reflecting the competitive interests of its emerging information technology and business process outsourcing sectors in more liberal services frameworks.
In agriculture, India collaborated with the G-33 coalition of developing countries to safeguard the livelihoods of its estimated 650 million rural citizens. This alignment entailed resisting commitments to reduce domestic support beyond levels considered politically sustainable, given the prevalence of subsistence-level farming. In manufacturing, despite significant unilateral tariff reductions, India emerged as the most frequent user of anti-dumping measures within the WTO system by the early 2000s. These measures were employed to address competitive pressures for adjustment in sectors such as steel, chemicals, and textiles following the rapid liberalisation of tariffs.
On the export side, software and IT-enabled services grew from a negligible base in 1990 to approximately USD 10 billion by 2001-02 and to over USD 44 billion by the mid-2000s. India sought commitments from developed-country partners for liberal visa regimes and greater market access for Indian professionals under GATS Mode 4, with limited success in the WTO framework. This asymmetry between India’s advancing offensive interests in services and the WTO’s inadequate provisions for services liberalisation was an early signal that the multilateral track would prove insufficient.
Structural Limits of the WTO-Centric Model
In addition to substantive imbalances in WTO commitments, the structural design of the multilateral institution imposed significant constraints. The Single Undertaking principle mandated that all elements of the negotiation be agreed upon collectively. As a result, sectors capable of rapid liberalisation could not advance without concurrent agreement on politically sensitive areas, such as agriculture. India’s trade interests were both broad and internally contradictory: rural constituencies sought protection from surges in agricultural imports, while expanding export industries required greater market access abroad. Reconciling these divergent interests within the WTO’s consensus-based framework became increasingly challenging.
Moreover, the WTO framework during the 1990s and 2000s primarily addressed trade in goods, whereas India’s most dynamic export growth occurred in services. The General Agreement on Trade in Services (GATS) disciplines remained limited in scope, and the enforcement mechanisms were weak. Digital trade, which would later become India’s most significant export platform, lacked a substantive WTO regulatory framework. These structural deficiencies contributed to India’s eventual shift toward free trade agreements (FTAs) as a more flexible means to advance its trade interests.
WTO Dysfunction and the Institutional Gap (2000s–2010s)
The Collapse of the Doha Development Round
The Doha Development Round, launched at the Fourth WTO Ministerial Conference in Doha, Qatar, in November 2001, was intended as a development-oriented initiative to address asymmetries resulting from the Uruguay Round, particularly the issue of agricultural subsidies in developed countries that distorted global commodity markets. In retrospect, the Round’s broad scope proved to be its most significant weakness. By combining agriculture, industrial tariffs (Non-Agricultural Market Access, NAMA), services, intellectual property, trade facilitation, and development provisions into a single undertaking, the process created numerous potential veto points and lacked mechanisms for partial or phased agreements.
India played a central role in the Doha negotiations, serving as a leader of the G20 coalition of developing countries alongside Brazil. By 2008, the Round appeared close to conclusion. Pascal Lamy, then WTO Director-General, reported that of the 20 items on the negotiating agenda, positions on 18 had substantially converged. The remaining contentious issue was the Special Safeguard Mechanism (SSM) in agriculture, which would allow developing countries to raise import duties in response to import surges without requiring an injury test. This provision ultimately became the primary obstacle to agreement.
The WTO negotiations collapsed in July 2008 due to an impasse between India and the United States regarding the threshold for activating the SSM. India and China advocated for a trigger at 110 per cent of base import volume, whereas the United States insisted on a threshold of 155 per cent. India considered the higher threshold ineffective for protecting subsistence farmers from import surges. The compromise proposal, suggested by Pascal Lamy, was rejected by India’s Commerce Minister Kamal Nath, who refused to accept an agreement on those terms. Consequently, the Geneva Ministerial meeting concluded without an agreement on 29 July 2008.
Subsequent efforts to revive the Round in 2009, 2010, and 2011 did not yield a breakthrough.
The December 2011 WTO Ministerial failed to advance the Doha Agenda in any meaningful way. By the Ninth Ministerial Conference (MC9) in Bali in December 2013, the scope of negotiations had been significantly reduced. The only substantive outcome was the Trade Facilitation Agreement (TFA), which addressed procedural and customs reforms. While important, this agreement fell far short of the comprehensive objectives originally envisioned for the development round. The Doha Round is, for all practical purposes, no longer an active negotiating agenda.
Paralysis in the WTO Dispute Settlement System
The WTO dispute settlement mechanism, often described as the organisation’s most significant institutional achievement and the “crown jewel” of the multilateral trading system, has remained dysfunctional since December 2019. The Appellate Body (AB), which functions as the de facto supreme court of international trade law, requires at least three members to adjudicate appeals. The United States, under both Presidents Trump and Biden, systematically blocked all new appointments to the AB. The stated reasons included concerns about judicial overreach, members serving beyond their terms under Rule 15 of the Working Procedures, and the AB’s perceived tendency to treat its own prior rulings as binding precedent, which the United States argued was inconsistent with the Dispute Settlement Understanding (DSU).
By December 2019, the AB’s membership had dropped below the required minimum, making it incapable of hearing appeals. As of April 2025, 32 dispute panel rulings, including 11 involving the United States, had been “appealed into the void” and thus lacked any final binding effect. The number of new cases submitted to the WTO has declined to approximately one-third of the level observed before the Appellate Body’s collapse, indicating a significant loss of confidence in the institution’s enforcement capabilities.
India’s response to the Appellate Body crisis has been characterised by ambivalence. While India has expressed concern regarding the paralysis and has supported efforts to restore a functional two-tier dispute settlement system, it has declined to participate in the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), a mechanism led by the European Union and adopted by over 20 WTO members. India has explicitly stated its intention not to join the MPIA. This position reflects India’s scepticism toward provisional arrangements that could become permanent without addressing existing power asymmetries in WTO governance. In practical terms, it indicates that India has prioritised securing trade through bilateral free trade agreements (FTAs) rather than relying on WTO enforcement mechanisms.
China’s Non-Market Practices as a Driver of WTO Disillusionment
A further, and arguably more structurally consequential, driver of disillusionment with the WTO framework was the widespread perception, shared across the political spectrum in Washington, Brussels, and New Delhi, that China had secured the benefits of WTO membership while systematically evading its core disciplines. The United States Trade Representative (USTR), in its annual reports to Congress on China’s WTO compliance, catalogued a pattern of state-directed behaviour that diverged sharply from the market-economy commitments China undertook upon accession in 2001. After more than two decades of membership, USTR Ambassador Katherine Tai characterised China as the single greatest challenge to the WTO-based international trading system, noting that it had retained a state-directed, non-market approach to the economy and trade that was fundamentally at odds with the WTO’s norms and principles. More specifically, successive USTR reports alleged that China continued to shield large-scale sub-central government subsidies from WTO scrutiny while also obscuring central government support channelled through so-called “government guidance funds,” and that the WTO dispute settlement mechanism had not been effective in addressing these serious issues, enabling China to reinforce its non-market policies without effective international discipline.
For India, these concerns were not merely theoretical. Indian policymakers saw Chinese state subsidies as a principal explanation for the surge in low-cost Chinese goods that followed the early-generation FTAs with ASEAN, South Korea, and Japan, agreements under which inadequate rules of origin allowed Chinese inputs transshipped through partner economies to access the Indian market at preferential tariff rates. External Affairs Minister S. Jaishankar gave this concern a clear voice in the aftermath of India’s RCEP withdrawal, stating that, in the name of openness, India had allowed subsidised products and unfair production advantages from abroad to prevail, and that the effect of past trade agreements had been to deindustrialise some sectors. Commerce Minister Piyush Goyal was more direct, characterising the RCEP as having become, in effect, an India-China FTA, and framing India’s withdrawal as reflecting, for the first time, a resolve that trade interests would not be subordinated to diplomatic pressures. Jaishankar had earlier flagged the structural asymmetry at the heart of the concern: India feared that any further trade liberalisation with China would generate a flood of Chinese goods into the Indian market while providing no comparable access for Indian exports, particularly in pharmaceuticals and information technology, into China, thereby widening an already substantial trade deficit. The WTO’s inability to discipline these practices, through either its subsidy notification rules or its now-paralysed dispute settlement mechanism, was a significant factor in India’s conclusion that multilateral frameworks alone were insufficient to manage trade relations with China, and that FTAs with partners offering verifiable reciprocity were a more reliable instrument of commercial statecraft.
The Rise of Unilateralism and Its Impact on India
The weakening of WTO norms extended beyond the Appellate Body. In March 2018, the Trump administration invoked Section 232 of the Trade Expansion Act of 1962 to impose tariffs of 25 per cent on steel and 10 per cent on aluminium imports, actions widely considered incompatible with WTO rules and justified on national security grounds. These measures directly impacted Indian exports. India, along with other WTO members, challenged the tariffs before the Dispute Settlement Body. However, the absence of a functioning Appellate Body meant that panel rulings could be appealed indefinitely, effectively nullifying their legal effect.
In June 2019, India was excluded from the United States Generalised System of Preferences (GSP) after the Trump administration determined that India had not provided equitable and reasonable market access for American exports. The removal from the GSP is estimated to cost Indian exporters approximately USD 190 million annually in preferential tariff benefits. This episode underscored a broader vulnerability: in a rules-based system weakened by an ineffective dispute-resolution mechanism, bilateral trade relationships increasingly reflect power asymmetries rather than legal rights.
Collectively, the collapse of the Doha Round, the paralysis of the Appellate Body, and the rise of tariff unilateralism have created what this paper terms the “institutional gap”. This structural deficiency has diminished the WTO’s normative authority and enforcement capacity, rendering exclusive reliance on multilateral mechanisms insufficient for a country with India’s trade ambitions.
The FTA Era (2010s–2020s): Strategic Shift Toward Preferential Liberalisation
Two Phases of India’s FTA Engagement: The UPA Period and the Post-2021 Resumption
India’s engagement with free trade agreements did not follow a single continuous trajectory. In retrospect, it is more accurately characterised as two distinct phases, separated by a deliberate strategic pause, with each phase shaped by different assessments of national interest and different readings of the evidence on FTA outcomes.
The first phase, spanning roughly 2004 to 2014 under the United Progressive Alliance (UPA) governments of Prime Minister Manmohan Singh, saw India conclude its most significant early-generation trade agreements. These included the India-ASEAN Agreement on Trade in Goods (2010), the Comprehensive Economic Partnership Agreements with South Korea and Japan (both 2010-11), and the initiation of RCEP negotiations in 2012. The UPA framework treated FTAs primarily as instruments of regional integration and geopolitical alignment, with the trade-deficit consequences receiving insufficient analytical attention during the negotiation stage. India’s trade deficit with RCEP-member nations rose from USD 7 billion in 2004 to USD 78 billion by 2014, reflecting both the trade liberalisation commitments undertaken under the UPA and India’s structural inability to match the export competitiveness of its FTA partners. When the Modi government assumed office in 2014, it began reviewing all existing trade agreements, and its approach to new FTAs remained cautious for much of the first term, reflecting a judgment that many earlier agreements had widened India’s trade deficits by generating import surges without commensurate export gains. This scepticism was reinforced by data from the Ministry of Commerce showing that between 2014-15 and 2019-20, India’s total exports increased by less than one per cent in value terms, while imports rose by five per cent, contributing to a widening of the trade deficit from USD 118 billion to USD 161 billion.
The second phase, which began in earnest from 2021-22, represented not a reversal but a recalibration. The government resumed FTA negotiations with a more selective and strategically disciplined approach, targeting partners with whom supply-chain complementarities, geopolitical alignment, and genuine reciprocity in services could be secured, and incorporating significantly tighter rules of origin to prevent the circumvention problems that had undermined the earlier generation of agreements. The renewed FTA strategy focused less on broad multilateral blocs and more on targeted bilateral agreements with economically complementary countries, placing particular emphasis on services, investment, and supply chain integration rather than on goods trade alone. The India-UAE CEPA (2022), the India-Australia ECTA (2022), and the India-EFTA TEPA (2024) were emblematic of this second phase, each reflecting institutional learning from the deficiencies of the 2010-era agreements. The two-phase structure of India’s FTA trajectory is therefore not merely a chronological observation but a policy narrative: the pause between phases reflected a genuine evidence-based reconsideration of whether the instruments being used were serving India’s export interests, and the resumption reflected a reformulated answer.
Typology of India’s Free Trade Agreements
India’s approach to free trade agreements (FTAs) has evolved significantly in both ambition and scope. The earliest agreements, such as the India-Sri Lanka FTA (1998) and the SAARC Preferential Trading Agreement, were limited, covering a narrow range of tariff lines and entailing modest liberalisation commitments. Subsequent agreements with ASEAN (goods in 2010; services and investment in 2014), Japan (2011), and South Korea (2010) represented a substantial advancement, incorporating comprehensive schedules for goods, services, and investment, as well as disciplines on customs cooperation, intellectual property rights, and competition policy.
The second generation of India’s FTAs, primarily spanning 2021 to 2025, is distinct in three key respects. First, these agreements involve partners in geopolitically strategic regions, including the Gulf, Europe, and the Indo-Pacific, thereby advancing India’s foreign policy objectives of balancing major powers and diversifying export markets. Second, they are characterised as “WTO-plus” agreements, featuring commitments on services, digital trade, investment, government procurement, and rules-of-origin disciplines that surpass World Trade Organisation standards. Third, these FTAs are increasingly aligned with domestic industrial policy, particularly the Production-Linked Incentive (PLI) scheme, to translate tariff preferences into enhanced export capacity.
India’s current FTA framework consists of “second-generation” comprehensive agreements that prioritise strategic partnerships, investment flows, and services rather than focusing solely on tariff reductions. Ongoing negotiations include the EU-India FTA, the India-Canada Comprehensive Economic Partnership Agreement, and efforts to update the India–ASEAN FTA. Many Indian industry stakeholders view the existing India–ASEAN FTA as having resulted in significant import surges without proportional export gains, highlighting the risks associated with shallow agreements.
Economic Rationale: Export Diversification and Enhanced Market Access
The economic justification for India’s FTA strategy is based on several foundational pillars. The first is export diversification. Historically, India’s merchandise exports were concentrated in sectors such as gems and jewellery, petroleum products, textiles, and engineering goods. The Production-Linked Incentive (PLI) scheme, introduced across 14 sectors in 2020-21 with a total incentive allocation of approximately INR 1.97 lakh crore (USD 28 billion), has driven substantial structural transformation in India’s export profile, fostering growth in electronics, pharmaceuticals, automobiles, and speciality chemicals. FTAs facilitate the preferential market access required to translate this expanded production capacity into increased export revenues.
The second pillar involves addressing trade imbalances by securing deeper market access. India’s trade deficit with ASEAN widened considerably following the 2010 goods FTA, prompting calls for renegotiation. This deficit was partly attributed to insufficient rules of origin, which permitted tariff arbitrage through Chinese inputs. In contrast, the India-UAE Comprehensive Economic Partnership Agreement (CEPA) and the India-Australia Economic Cooperation and Trade Agreement (ECTA) incorporated more stringent rules of origin and broader sectoral coverage, contributing to more balanced trade outcomes.
A structural transformation in India’s merchandise export profile has materially changed the strategic calculus behind its FTA negotiations. For much of the first decade of the 2000s, India’s goods export basket was anchored in petroleum products, gems and jewellery, textiles, and engineering goods, with automotive components representing an important but modest share of manufacturing exports. Electronics, now central to India’s industrial ambition, were effectively absent as an export category. India has transformed from a net importer of mobile phones to a net exporter over the past decade and has become the world’s second-largest mobile phone manufacturer. The scale of this shift is significant: electronics exports from India crossed USD 47 billion for the first time in 2025, representing a 37 per cent increase over the preceding year, with approximately USD 30 billion of that total attributable to PLI-driven smartphone exports, making electronics the country’s third largest export category, having risen from seventh place just five years earlier. This transformation in the composition of India’s exportable surplus changes the nature of what FTAs need to deliver: rather than simply securing market access for labour-intensive manufactures, India increasingly requires agreements with provisions on digital trade, intellectual property, mutual recognition of standards, and seamless rules of origin for complex, multi-country value chains.
Yet the strategic importance of this changing basket is substantially qualified by a structural deficiency in the utilisation of FTA preferences by Indian firms. Only 20 to 30 per cent of India’s eligible exporters currently utilise FTA benefits, compared to 60 to 70 per cent for exporters shipping goods into India. High compliance costs and already low tariffs in partner countries discourage Indian exporters from claiming preferential access, particularly among smaller firms. The Global Trade Research Initiative (GTRI), drawing on Ministry of Commerce trade data, attributes this asymmetry to a structural anomaly: India’s trade-weighted most-favoured-nation tariff stands at approximately 12.6 per cent, compared to near-zero rates in Singapore and below four per cent in Japan, Australia, Malaysia, and the UAE, meaning that when India reduces tariffs under an FTA, foreign exporters gain a substantial price advantage in the Indian market, while Indian exporters often gain comparatively little in already-open partner markets. The implications are significant. An FTA strategy premised on expanding India’s export capacity delivers its full potential only if Indian firms are equipped, informed, and incentivised to use the preferential channels being negotiated on their behalf. The second generation of FTAs has partly addressed this through streamlined rules of origin and capacity-building provisions, but the low utilisation rate, which the paper has already noted in the context of the ASEAN experience, remains a structural constraint that domestic trade facilitation policy must address alongside external agreement-making.
The third pillar is China-plus positioning in global value chains. Apple’s decision to diversify iPhone assembly into India, Samsung’s expanded manufacturing presence, and the rise of Indian smartphone exports as a major new category illustrate a broader structural shift. Mobile phone production under the PLI scheme increased twenty-eight-fold from INR 18,000 crore in 2014-15 to INR 5.45 lakh crore in 2024-25. Mobile phone exports have risen almost eightfold since 2020-21, with the UAE, the United States, the Netherlands, and the UK among the top destinations.
Strategic Rationale: Geoeconomic Positioning in a Multipolar World
India’s FTA strategy is closely linked to its geoeconomic positioning within a multipolar global order. The decision to withdraw from the Regional Comprehensive Economic Partnership (RCEP) in November 2019 was based on concerns regarding surges in Chinese imports, insufficient service commitments from ASEAN partners, and the potential for trade diversion. This withdrawal, which distinguished India from all other RCEP participants, demonstrated that India’s FTA approach is selective and strategically calculated rather than uniformly liberal.
In response, India has adopted what is often described as a “Link West” strategy, strengthening economic ties with the Gulf, Europe, and Indo-Pacific democracies while preserving strategic autonomy vis-à-vis Russia and China. The India-Middle East-Europe Economic Corridor (IMEC), announced at the G-20 Summit in New Delhi in September 2023, exemplifies this strategy. IMEC integrates the India-UAE CEPA trade corridor into a broader connectivity framework linking India to Europe via the Middle East, offering an alternative to China’s Belt and Road Initiative.
Geopolitical Shocks as Accelerants
Trump-Era Trade Unilateralism (2017–2021)
The election of Donald Trump in November 2016 represented a pivotal shift in the post-war multilateral trading order. The Trump administration adopted a transactional and power-oriented trade philosophy, viewing the WTO as an institution that favoured the interests of trading partners over those of American workers. It implemented tariff and non-tariff measures with a disregard for WTO disciplines, a stance that previous administrations would have considered unacceptable.
During the Trump administration, India faced several trade challenges, including the 2018 Section 232 steel and aluminium tariffs, the June 2019 removal from the Generalised System of Preferences (GSP), retaliatory Indian tariffs on American agricultural and industrial products, and a breakdown in bilateral trade negotiations. However, the most significant impact was institutional. The systematic obstruction of Appellate Body appointments, initiated under the Obama administration and completed under Trump, removed the primary enforcement mechanism through which India could have contested WTO-incompatible US trade actions.
India concluded that in a trade environment where the dominant power was prepared to violate WTO rules without consequences and the dispute settlement mechanism could not deliver timely or enforceable remedies, export market security depended on bilateral agreements with partners that offered predictable, legally binding market access commitments outside the WTO framework. The acceleration of free trade agreement (FTA) negotiations with the United Arab Emirates (UAE), Australia, and the European Free Trade Association (EFTA) in 2021-2022 demonstrates this strategic adjustment.
COVID-19 Pandemic and Supply Chain Shock (2020–2022)
The COVID-19 pandemic revealed significant vulnerabilities in globally integrated supply chains. India was particularly affected by its reliance on Chinese Active Pharmaceutical Ingredient (API) imports, which accounted for over 60 per cent of its API requirements before 2020. This dependence resulted in critical shortages during the initial phase of the pandemic. In response, India imposed export restrictions on 26 API categories and formulations in March 2020, partially lifting these restrictions as domestic production increased under the Production Linked Incentive (PLI) scheme.
The pandemic accelerated two complementary policy responses. Domestically, it underscored the need for the PLI scheme to promote self-sufficiency in pharmaceutical manufacturing. India, previously a net importer of bulk drugs valued at INR 19.3 billion in FY 2021-22, became a net exporter with exports reaching INR 22.8 billion in FY 2024-25, following capacity expansion driven by the PLI scheme. Internationally, the pandemic prompted India to prioritise FTA negotiations with partners capable of providing secure supply chain links, such as Japan for advanced manufacturing components, the UAE as an export hub for Gulf and African markets, and Australia for critical minerals essential to the clean energy transition.
The issue of vaccine access further demonstrated the limitations of WTO frameworks in ensuring supply chain security. The debate over a TRIPS waiver at the WTO, led by India and South Africa, sought a temporary suspension of intellectual property protections to facilitate the production of generic vaccines. This process was protracted and contentious, resulting only in a limited ministerial decision in June 2022, well after the period of acute vaccine scarcity. This experience reinforced India’s perception that the WTO’s consensus-based structure is too slow and vulnerable to veto by major pharmaceutical economies to function as the primary mechanism for critical trade security.
Ukraine War and Global Trade Fragmentation (2022–2024)
Russia’s invasion of Ukraine in February 2022 initiated a new phase of global trade fragmentation. Western sanctions on Russia, export controls on dual-use technologies, and disruptions to Black Sea grain trade contributed to a partial division of the global trading system along geopolitical lines. G7-aligned economies accelerated ‘friend-shoring’ strategies to reduce trade dependencies on adversarial states, resulting in significant changes to energy and food commodity markets.
India’s response reflected its doctrine of strategic autonomy. India expanded trade with Russia, notably by purchasing discounted Russian crude oil, a practice that increased following the imposition of Western sanctions. India also declined to participate in Western-led sanctions regimes. Concurrently, India accelerated FTA negotiations with Western-aligned partners, including the United Kingdom (finalised May 2025), the European Union, and EFTA (signed March 2024), aiming to capitalise on market-access opportunities created by Western friend-shoring strategies while maintaining its relationship with Russia.
The Ukraine War also strengthened India’s role in the development of the India-Middle East-Europe Economic Corridor. The collapse of Ukrainian grain exports and the increased focus of Middle Eastern economies on diversifying food security enhanced the strategic importance of India’s agricultural and processed food export capacity, supported by FTAs with the UAE and the Gulf Cooperation Council. The Comprehensive Economic Partnership Agreement (CEPA) with Oman, concluded in December 2025, further expanded this framework.
Empirical Assessment: FTAs versus WTO-Only Trade
India-UAE CEPA: A Flagship Case
The India–UAE Comprehensive Economic Partnership Agreement, negotiated in just 88 days and implemented on 1 May 2022, offers robust empirical support for the FTA thesis. Prior to CEPA, bilateral merchandise trade was valued at USD 43.3 billion in FY 2020-21. By FY 2023-24, this figure had increased to USD 83.7 billion, representing approximately 93 per cent growth over three years. In contrast, global trade contracted by about 5 per cent in dollar terms during the same period.
India’s non-oil exports to the UAE, a metric directly linked to CEPA’s tariff elimination, reached USD 27.4 billion in FY 2023-24, reflecting an average annual growth rate of 25.6 per cent since the agreement’s implementation. For comparison, India’s non-oil exports to the rest of the world declined by 4.2 per cent during the same period. By the first half of 2025, non-oil trade between India and the UAE had increased by an additional 34 per cent year-on-year to USD 38 billion.
The transformation in the composition of India’s exports to the UAE is also noteworthy. Electronics and smartphones, sectors with minimal export presence prior to CEPA, have become some of the fastest-growing categories. Smartphone exports reached USD 2.57 billion in FY 2023-24, while overall electronics exports recorded 32.46 per cent growth in FY 2024-25, rising to USD 38.58 billion. Engineering products, boilers, and organic chemicals have similarly demonstrated strong growth, underscoring the capacity-building impact of the PLI scheme in sectors benefiting from CEPA’s tariff schedule. Bilateral trade surpassed USD 100 billion in FY 2024-25, achieving this milestone ahead of the original target.
India-Australia ECTA and India-EFTA TEPA
The India–Australia Economic Cooperation and Trade Agreement (ECTA), signed and implemented in December 2022, eliminated or reduced tariffs on the majority of traded goods. Australia removed tariffs on over 96 per cent of Indian exports, benefiting key sectors including textiles, garments, leather goods, gems and jewellery, pharmaceuticals, engineering products, and select agricultural products. Notably, India’s pharmaceutical sector gained improved access to a high-income, English-speaking market with stringent regulatory standards, enhancing the competitiveness of Indian generic drug manufacturers.
The India-EFTA Trade and Economic Partnership Agreement (TEPA), signed on 10 March 2024, marks India’s first FTA with developed European nations. The agreement features an investment commitment mechanism, with Switzerland, Norway, Iceland, and Liechtenstein pledging to facilitate USD 100 billion in investment in India over 15 years, targeting the creation of 1 million jobs. In exchange for reduced and phased tariffs on EFTA agricultural and industrial exports, India secured enhanced market access for pharmaceuticals, engineering goods, and professional services.
The EFTA TEPA signifies a qualitative shift in India’s FTA strategy, moving from agreements centred on tariff reduction in goods to those encompassing deeper integration in investment, intellectual property, digital trade standards, and regulatory cooperation. This evolution addresses areas where the WTO’s multilateral framework has been ineffective since the collapse of the Doha Round, underscoring the growing disparity between the outcomes of preferential agreements and those of a stalled multilateral system
PLI as the Domestic Complement to FTA Strategy
India’s FTA strategy requires a robust domestic industrial policy framework to generate the export supply capacity necessary to leverage market access concessions. The PLI scheme, implemented across 14 priority sectors since 2020-21, serves as this domestic complement. By March 2025, the PLI scheme had attracted realised investments of approximately INR 1.76 lakh crore (USD 21 billion), created over 1.2 million direct and indirect jobs, and generated incremental sales exceeding INR 16.5 lakh crore (USD 190 billion). PLI-driven exports surpassed INR 5.31 lakh crore (approximately USD 61.76 billion).
The transformation of the electronics sector from a net importer to a net exporter exemplifies the effectiveness of the PLI-FTA collaboration. Mobile phone production increased twenty-eightfold between 2014-15 and 2024-25, while mobile phone exports rose eightfold between 2020-21 and 2024-25. The zero-tariff provisions for electronics under the UAE-India CEPA directly facilitated and amplified these PLI-driven supply gains. Similarly, pharmaceutical PLI investments have enabled India to transition from a net importer to a net exporter of bulk drugs, with the Australia ECTA further enhancing market access for Indian generic manufacturers in a premium market.
Key Phases in India’s Trade Policy, 1990s–2020s
| Period | Dominant Frame | Main Instruments | Marked Events / Shifts |
|---|---|---|---|
| 1990-2000s | WTO-centric multilateralism | WTO rules, MFN, S&D provisions, gradual QR phase-out, TRIPS alignment | 1995 WTO accession; tariff compression from 355% peak to 12% average MFN by 2010; IT services boom |
| 2000s-2010s | WTO-plus cautious FTA turn | Early CEPAs (ASEAN goods 2010, Japan 2011, South Korea 2010), SAFTA | Doha Round collapse (2008); India-US SSM dispute; Appellate Body erosion begins 2016 |
| 2010s-2020s | FTA-centric strategic shift | India-UAE CEPA (2022), India-Australia ECTA (2022), EFTA TEPA (2024), India-UK FTA (2025); PLI scheme (2020-present) | Trump-era unilateralism; COVID-19 supply chain shock; Ukraine War fragmentation |
Selected India FTAs vs. WTO-Only Trade (Comparative Metrics)
| Partnership Type | Example Markets | Observed Export Trend | Strategic Value |
|---|---|---|---|
| CEPA (post-2022) | UAE, Australia, EFTA | India-UAE bilateral trade nearly doubled: USD 43.3bn (FY21) to USD 83.7bn (FY24). Non-oil exports grew 25.6% p.a. post-CEPA. | China-plus GVC positioning; Indo-Pacific/European linkage; PLI-FTA synergy in electronics and pharma; IMEC corridor anchor |
| Early-generation FTA (pre-2015) | ASEAN, South Korea, Japan | Mixed results: Indian exports to ASEAN grew but the trade deficit widened significantly, attributed to rules of origin gaps and Chinese input arbitrage. | Regional integration; sourcing of components for domestic value chains; services access (IT, BPO) improved in Japan/Korea |
| Non-FTA WTO (MFN) partners | Developing country LDC partners; G20 members without FTA | Slower, policy-fragmented growth; subject to AD/CVD actions; no enforcement mechanism post-2019 AB paralysis | Limited export diversification; no binding market access security; dependent on MFN rate stability |
Selected India FTAs vs. WTO-Only Trade (Comparative Metrics)
A comprehensive empirical assessment should recognise the limitations and trade-offs inherent in India’s free trade agreement (FTA) strategy. The India-ASEAN FTA exemplifies the risks associated with poorly structured agreements. Following the 2010 agreement, the trade deficit with ASEAN widened, a development that industry associations attributed to insufficient rules-of-origin provisions. These provisions allowed Chinese goods to be transshipped through ASEAN countries into India with minimal value addition, thereby benefiting from preferential tariff treatment. In response, India has pursued the renegotiation of the ASEAN FTA and has adopted a more cautious approach to rules of origin in subsequent agreements.
Trade diversion, in which preferential trade with FTA partners displaces potentially more efficient trade with non-FTA partners, remains a well-established theoretical concern. In the Indian context, the United Arab Emirates’ function as a re-export hub introduces additional complexity. Some Indian exports to third countries are routed through Dubai for logistical and commercial reasons, raising questions regarding the net additionality of trade growth attributed to the Comprehensive Economic Partnership Agreement (CEPA). The Indian government’s explicit statement at the 13th India-UAE High-Level Task Force in September 2025, affirming that India does not intend to use the UAE as a transshipment base for US-bound goods, demonstrates recognition of these issues.
India’s FTA strategy also produces sectoral distributive consequences. Sectors with significant import-competing interests, including dairy, specific agricultural products, and labour-intensive manufacturing segments susceptible to lower-cost regional competition, have resisted concessions during FTA negotiations. This resistance has resulted in asymmetries between India’s offensive interests, such as services, electronics, and pharmaceuticals, and its defensive interests, including agriculture and certain micro, small, and medium enterprises (MSMEs). Effective management of these political-economy trade-offs requires continuous domestic consultation mechanisms, which India’s negotiating institutions have not consistently implemented.
FTA-Centric Globalisation vs. WTO-Centric Multilateralism
The Structural Case for India’s FTA Strategy
The theoretical justification for India’s shift toward FTAs is based on two complementary rationales. The first is the hub-and-spoke model of preferential liberalisation. By establishing a network of bilateral and plurilateral agreements with major economies in regions such as the Gulf, Europe, the Indo-Pacific, and South Asia, India attains a structurally central position within multiple overlapping trade corridors. This approach reduces vulnerability to individual geopolitical disruptions and maximises India’s ability to navigate among competing major powers without reliance on any single partner.
The second rationale is grounded in geoeconomic realism. In a multipolar global order, the United States has retreated from its hegemonic support for the rules-based trading system, China continues to pursue mercantilist trade practices with limited World Trade Organisation (WTO) discipline, and the European Union is developing defensive trade instruments such as the Carbon Border Adjustment Mechanism and Foreign Subsidies Regulation. Under these conditions, bilateral agreements with partners willing to offer binding commitments represent the most reliable means for an emerging economy to secure market access.
India’s FTA strategy aligns with a growing consensus in international political economy literature that ‘WTO-plus’ bilateral and plurilateral agreements have become the principal forums for advanced trade rule-making. Areas such as services liberalisation, digital trade standards, investment protection, sustainability disciplines, and supply chain cooperation are progressing more rapidly through FTAs and plurilateral arrangements than through the WTO’s multilateral processes.
The Transition from Trade Policy to Supply Chain Policy
The most significant conceptual shift underlying India’s contemporary trade strategy is one that the vocabulary of conventional trade policy, such as tariffs, market access, and preferential margins, only partially captures. What is occurring globally, and what the CEPA model is designed to address, is best described as a transition from trade policy to supply chain policy: the bundle of complementary measures, including domestic industrial capacity, logistics infrastructure, investment climate, regulatory harmonisation, customs facilitation, and standards alignment that are necessary for a country to position itself as an attractive and reliable node in global production networks. Tariff reduction, the traditional core of WTO negotiations, is a necessary but increasingly insufficient condition for supply chain integration. A country can have zero tariffs on goods and still fail to attract or retain supply chains if its port infrastructure imposes uncompetitive dwell times, if its standards bodies lack mutual recognition agreements with key trading partners, if its investment frameworks do not offer adequate intellectual property protection, or if its regulatory environment creates unpredictability for multinational producers managing complex multi-jurisdiction value chains.
This shift explains why the WTO’s multilateral framework, which is architecturally centred on goods-trade disciplines, most-favoured-nation principles, and a dispute settlement mechanism designed to resolve discrete tariff disputes, has become structurally insufficient as the primary instrument of trade strategy for a country in India’s position. A dramatic turnabout in global attitudes toward supply chain management has occurred, with the balance among efficiency, resilience, and security in cross-border trade now driving trade and investment decisions in ways the WTO’s existing rulebook was not designed to address. Comprehensive Economic Partnership Agreements and Comprehensive Economic Cooperation Agreements, by contrast, are precisely designed to bundle these requirements together: the India-UAE CEPA, for example, covers investment protection, services liberalisation, digital trade, government procurement, mutual recognition, and customs facilitation alongside tariff schedules, creating a framework within which supply chain relationships can be built, governed, and legally secured. The India-EFTA TEPA went further still, incorporating an explicit investment facilitation commitment of USD 100 billion over fifteen years, a provision that has no equivalent in WTO architecture.
This is not incidental: it reflects a deliberate policy logic in which trade agreements are no longer primarily about negotiating access for existing exports, but about creating the conditions under which new production capabilities and supply chain linkages can be developed. For India, whose PLI scheme is explicitly designed to attract supply chains that are relocating from China, this supply chain policy logic is inseparable from its FTA strategy. The two instruments are, in the most important sense, a single integrated policy framework, one that the WTO’s goods-centric, consensus-based architecture is simply not equipped to replicate.
The Enduring Value of the WTO Baseline
Advocating for an FTA-centric approach does not imply abandoning the World Trade Organisation (WTO). The multilateral framework continues to serve three essential functions. First, it establishes the most-favoured-nation (MFN) tariff baseline. India’s current applied MFN average of approximately 17 per cent on manufactured goods, along with its bound tariff ceiling, forms the reference point for all FTA preferences. Without this baseline, the preferential margins and quantitative advantages that Indian exporters derive from FTAs would lack significance.
Second, the WTO’s Trade Facilitation Agreement (TFA), adopted in 2013 and entering into force in 2017, has resulted in significant reductions in customs processing times and documentary requirements across WTO member countries, including those where India does not have FTAs. For Indian exporters of textiles, apparel, and agricultural products, whose competitiveness is particularly sensitive to logistics costs and border-clearance delays, implementing the TFA in partner markets yields substantial benefits.
Third, the WTO continues to serve as the primary forum for developing-country coalitions. India’s leadership in the G-33, G-20, and BASIC coalitions at the WTO has been a significant tool of South-South diplomacy, allowing India to advocate for developing-country interests in multilateral negotiations. This leadership role generates political capital and goodwill, which complement India’s bilateral FTA strategy. Complete withdrawal from the multilateral forum would result in the loss of this influence.
A Hybrid Strategy for the Post-WTO World
The optimal trade policy architecture for India is a hybrid model. This approach combines deep, high-quality free trade agreements (FTAs) with strategic partners as the primary mechanism to advance export interests and ensure supply chain security. It also includes calibrated engagement in World Trade Organisation (WTO) reform, particularly in restoring dispute settlement, establishing digital trade disciplines, and updating subsidy rules, to serve as a governance backstop. Additionally, the Production Linked Incentive (PLI) industrial policy serves as the domestic supply-side complement, ensuring that FTA market access translates into tangible export capacity.
Implementing this hybrid strategy requires India to address a persistent tension in its trade policy identity: the contrast between its multilateralist, development-oriented stance at the WTO since the 1990s and the pragmatic, pro-bilateral approach implied by its acceleration of FTAs. This tension is not insurmountable. India can continue to advocate for multilateral reform, particularly in dispute settlement, digital trade, and special and differential (S&D) provisions, while simultaneously using FTAs as the primary vehicle for export growth. However, given the structural conditions of the 2020s, reliance on WTO multilateralism alone is no longer a sufficient trade strategy.
Conclusion and Policy Implications
This paper demonstrates that India’s trade interests have been better advanced by shifting toward preferential free trade agreements and adopting a geoeconomically calibrated approach to global liberalisation, rather than maintaining exclusive reliance on the stagnating WTO multilateral framework. Empirical evidence supports this argument: the India-UAE Comprehensive Economic Partnership Agreement (CEPA) has nearly doubled bilateral merchandise trade in three years, with non-oil exports increasing by 25.6 per cent annually despite a global trade contraction. PLI-driven supply capacity in electronics and pharmaceuticals has resulted in export surges that most-favoured-nation (MFN) relationships under the WTO could not have achieved at a similar pace or with comparable certainty.
The structural drivers of this transformation. This includes the collapse of the Doha Round, paralysis of the Appellate Body, the Trump administration’s dismantling of WTO norms, the COVID-19 supply chain shock, and trade fragmentation resulting from the Ukraine War, which are not merely cyclical disruptions but represent systemic changes to the global trade governance landscape. These developments make a return to WTO-centric multilateralism as the primary instrument of Indian trade policy both politically implausible and strategically suboptimal.
This paper presents four policy recommendations for India’s trade strategy over the next decade. First, India should prioritise deep, high-quality FTAs with strategic partners in the Indo-Pacific, Europe, and West Asia. It is essential to ensure that rules of origin provisions are robust enough to prevent trade deflection while remaining commercially viable. The long-delayed renegotiation of the ASEAN FTA should be treated as a priority.
Second, India should utilise the WTO primarily as a backstop and a rule-making forum, rather than as the main vehicle for market access. India should invest diplomatic resources in restoring a functional dispute settlement system, as the costs of the Appellate Body’s paralysis have demonstrated the importance of enforceable trade law. Additionally, India should advocate for WTO-plus disciplines on digital trade and industrial subsidies that address the realities of contemporary trade.
Third, India should strengthen the domestic infrastructure, standards bodies, logistics, MSME adjustment support, and regulatory capacity needed to absorb the disciplining effects of FTAs. The widening gap between India’s FTA ambitions and its capacity to comply with domestic standards is a persistent constraint on FTA utilisation, as evidenced by the relatively low certificate-of-origin utilisation rates in some FTAs.
Fourth, India should further integrate PLI and FTA policy initiatives by sequencing PLI investments alongside FTA negotiations to ensure that production capacity is established before preferential market access becomes available. The electronics-CEPA model, where PLI-driven production growth is aligned with CEPA-enabled market access, should serve as a template for sectors such as pharmaceuticals, clean energy technology, and advanced manufacturing.
India’s transition from a WTO rule-taker to an FTA deal-maker illustrates the maturation of its trade policy framework and the increasing ambition of its economic statecraft. In the fragmented and multipolar trade environment of the 2020s, this evolution signifies not a withdrawal from globalisation, but rather a pragmatic renegotiation of globalisation on terms that better serve India’s interests and strategic autonomy.
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