Bridging the Gap Between Trade Agreements and Trade Outcomes in India

India’s trade agreements can broadly be classified into three epochs – early regional orientation starting with the Bangkok Agreement (now APTA) in 19751, agreements with the Asian and South American economies through bilateral and multilateral deals over 2004 – 2011, and the latest round of agreements starting 2021. Since 2021, India has finalised 8 trade agreements covering 37 countries and announced a trade deal with the USA. India is also reported to be in active discussions with Canada, Chile, Peru, and the Gulf Cooperation Council (GCC), among others2. The concluded agreements, together with the trade deal with the USA, cover ~70 per cent of global GDP and ~65 per cent of global trade3.  

India’s FTA Utilisation and Trade Outcomes 

However, India’s performance on Free Trade Agreements (FTAs) leaves a lot to be desired. Estimates indicate that India’s FTA utilisation is at 25 per cent4, significantly lower than developed economies that are at 70-80 per cent utilisation rates5. Even other emerging economies such as Vietnam, South Korea, Mexico and Chile operate at higher rates of 40-50 per cent6. Lower utilisation of FTA translates into multi-billion-dollar annual opportunity cost, which is also reflected in India’s widening trade deficit with its FTA partners. In H1 FY26, India’s trade deficits with import partners increased to USD 58 bn, a 20 per cent plus year-on-year (Y-o-Y) increase7,8. These deficits are reflected over a longer period as well. India’s trade deficit with the ASEAN increased from USD 21.8 bn in FY19 to USD 45.2 bn in FY259. This means that India is disproportionately bearing the adjustment cost of trade liberalisation.  

Indian Manufacturing faces Structural Constraints  

Import dependence and lack of GVC Integration: Compared to the global peers, India’s manufacturing sector has a strong dependence on imports for competitively priced, high-quality raw materials due to an underdeveloped manufacturing ecosystem – which impacts price competitiveness and leads to challenges in meeting Rules of Origin (RoO) requirements. Furthermore, with the exception of electronics, which have seen a significant boost from the export of mobile phones, and automobiles, a significant portion of India’s exports is accounted for by low value addition products10. India’s weak integration into Global Value Chains (GVCs) results in firms importing inputs from other nations reducing the share of domestic value addition and thus RoO requirements, which contributes to higher costs impacting competitiveness and export volumes. This creates a vicious cycle which hampers saleability and thus, the ability to invest in efficiency improvement and innovation. Breaking this cycle requires multiple concurrent steps – deepening domestic input ecosystems through carefully designed PLI schemes which also factor in MSMEs, enabling international collaboration to develop domestic capabilities and negotiating lower value addition thresholds (which may ramp up gradually in a phased manner) with trade partners.  

Quality and Standards Compliance: Indian exporters also struggle to meet the quality, packaging, and labelling standards imposed by many of the nation’s trade partners – a problem that is expected to become even more obvious as the FTA with the EU becomes operational. While there has been significant improvement in India’s quality infrastructure over the last decade, a gap persists vis-à-vis the requirements of European and US markets, which is often reflected in reports of Indian exports, especially agri exports, being rejected due to sanitary and phytosanitary measures. Time-bound market readiness programmes which provide product-specific compliance gap assessments, expansion of accredited testing laboratory infrastructure at key production hubs, and pre-shipment quality certification protocols aligned to the standards required by the trade partners can help.  

Information Gaps: Awareness and information asymmetry pose a challenge to companies, especially MSMEs. Limited information about available benefits, access mechanisms and processes, and compliance requirements for exports result in companies not leveraging the increased market access available to them through India’s trade agreements. Structured knowledge sharing sessions, sector level awareness campaigns, and publicly available foreign market research documents in regional languages can help companies develop dedicated export product lines and strategies. This dynamic information infrastructure, which may be provided through a single-window digital platform, can help exporters make informed decisions. This platform’s capabilities may include Natural Language Processing (NLP) driven HS code identifier and evaluator, allowing exporters to input their product and destination country to receive applicable FTA clauses, documentation checklist, compliance cost estimate and links to relevant support and testing infrastructure. Given the role played by customs brokers and freight forwarders in the Indian trade ecosystem, mandating an FTA module in customs broker licensing (with continued refreshers) and creating incentive structures for brokers who facilitate FTA utilisation can have an outsized impact. Integrating FTA eligibility alerts into the UDYAM registration portal and the GeM platform that prompts MSMEs with relevant FTA opportunities based on their existing product and export profiles can further help increase awareness. 

Ecosystem Gaps: The absence of dedicated support for trade promotion further compounds these challenges. ASEAN countries (especially Thailand, Vietnam, Indonesia, and Malaysia) have sophisticated export promotion agencies, well-established Certificate of Origin (CoO) issuance systems, and deep integration into global value chains that naturally meet Rules of Origin (RoO) criteria. Korean conglomerates (chaebols) have dedicated FTA utilisation teams, while the Korean Customs Service actively tracks utilisation. Japanese trading companies (Sogo Shosha) are globally renowned for their trade facilitation. Indian exporters, particularly MSMEs, lack equivalent institutional support and struggle with a fragmented trade enablement ecosystem.  

High Compliance Costs: These challenges are further compounded by high compliance costs. High compliance costs, including for obtaining quality certificates and CoOs (documentation preparation, agency visits, potential re-submissions) can exceed the tariff saving, making FTA utilisation economically irrational for small players. Dedicated support infrastructure and increased testing and certification infrastructure that issues digital documentation on blockchain can help address these challenges.  

Policy Priorities to Boost Trade Competitiveness 

Boosting India’s trade competitiveness requires:  

• Strengthening the manufacturing ecosystem through plug and play SEZ and industrial parks with in-place approvals and supporting infrastructure – enabled by the government and led by the private sector. The industry highlights land acquisition and attaining the required permissions and clearances as a significant hurdle for greenfield projects. Pre-clearances and approvals supported by collective infrastructure and utilities that are built and manged by the private sector can help mitigate this issue. Such clusters, when supported by appropriate sectoral policies, will aid the development of input value chains, ancillary ecosystems and soft infrastructure, boosting MSMEs and supporting the workforce. 

• Building dedicated sectoral trade desks that track global demand trends across trade channels and provides real time inputs: An AI-powered trade analytics system can help monitor real-time trade flows and demand landscape, predict impact scenarios, and proactively make suggestions to the government and companies. This can also include “Global Connect” programmes with targeted interventions for each FTA market. 

• Improved access to finance: Developing a rating system for export-ready firms and providing targeted support based on ratings, including through a dedicated fund for technology upgradation and quality certification support, can help focus efforts and funding where it is most needed and can drive the most impact. Specialised credit schemes for MSME exporters with performance-based incentives can provide additional support. 

• Single window clearances that are time-bound, require limited information and rely on simply, easy to understand forms will help reduce friction and improve predictability. 

• Customs digitisation with rule-based, discretion-free processing: Despite transformation initiatives across the past decade, several customs processes remain partly offline and discretion-driven, causing delays. Digital systems that leverage technologies such as AI and blockchain will help strengthen implementation and create automated self-check compliance mechanisms. Additionally, expanding Customs Advance Ruling capacity will help reduce turnaround times. 

• Improving compliance and governance: While various government initiatives and digital reforms have helped reduce friction, the business environment continues to be hampered by a high number of applicable laws and regulations, overlapping approval requirements, and a drawn-out dispute resolution process. Interventions focused on EoDB will help reduce the compliance burden on businesses and reduce administrative costs for the government.  

• Develop a digital platform to report market access issues, similar to the EU’s Trade Barriers Reporting mechanism. Supplementation through a dedicated legal aid fund for collective industry-association filings can further strengthen access to remediation. 

• Establishing MSME export facilitation centers in all major industrial clusters with FTA-specific advisory services, supplemented with a digital platform connecting MSMEs with potential buyers in FTA partner countries (extending the ONDC to global value chains) can help improve access. 

Way Forward 

Traditionally, India’s FTAs have focused on merchandise exports. These trade deals have not secured sufficient reciprocal market access for its competitive service sectors, including IT, finance, and professional services. While the measures under the Australia and EU agreements appear to be a step in the right direction, ensuring that operationalisation enables market access and talent mobility without the imposition of non-tariff barriers will require careful monitoring and remediation mechanisms on a real-time basis. A Services Trade Implementation Monitoring Cell that tracks visa processing times, licensing requirements and professional recognition procedures in real-time can help ensure that the practices followed by partner countries are consistent with FTA commitments. 

Building a dedicated FTA realisation agency that operates in a mission mode and brings together all government, compliance and industry stakeholders can help drive these changes in a time-bound, accountable manner. Investment in digital and physical infrastructure, institutional reform and EoDB can help boost India’s FTA utilisation and overall export competitiveness. 

Note: This article has been authored by Sanjeev Krishan, Chairperson, PwC in India. It was first published in the March 2026 issue of CII ARTHA (Issue 10)